Assume that you recently accepted a position with the First Security Bank as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $80,000 from DiamondJewelry.com, a small proprietorship. In support of the loan application, Marion Zastrow, owner, submitted a “Statement of Accounts” (trial balance) for the first year of operations ended December 31, 2008.
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DiamondJewelry.com Statement of Accounts December 31, 2008 |
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Cash |
2,050 |
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Billings Due from Others |
15,070 |
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Supplies (chemicals, etc.) |
7,470 |
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Trucks |
26,370 |
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Equipment |
8,090 |
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Amounts Owed to Others |
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2,850 |
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Investment in Business |
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23,500 |
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Service Revenue |
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73,650 |
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Wages Expense |
30,050 |
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Utilities Expense |
7,330 |
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Rent Expense |
2,400 |
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Insurance Expense |
700 |
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Other Expenses |
470 |
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100,000 |
100,000 |
1. Explain to Marion Zastrow why a set of financial statements (income statement, statement of owner’s equity, and balance sheet) would be useful to you in evaluating the loan request.
2. In discussing the “Statement of Accounts” with Marion Zastrow, you discovered that the accounts had not been adjusted at December 31. Analyze the “Statement of Accounts” and indicate possible adjusting entries that might be necessary before an accurate set of financial statements could be prepared.
3. Assuming that an accurate set of financial statements will be submitted by Marion Zastrow in a few days, what other considerations or information would you require before making a decision on the loan request?