Question

Fred Farmer needs to prepare a balance sheet for his bank. He spent the day getting the following information. Fred needs your help to build a balance sheet, and evaluate it. The information was gathered on 2/1/18

Grain sorghum in storage 4100 cwt @ $5.40 per cwt

Hay on hand 75 ton @ $50.00 per ton

Growing wheat 285 acres @ 24.50 per acre invested

Farm mortgage payment due 4/7/18 $16,000 principle, $20,200 interest

balance after 4/7/18 payment $228,000

Building and improvements $58,000

Note payable this year (feeder cattle) $46,000

Calves (sell in 60 days) 96 head @ $290 per head

Feeder cattle (sell 5/1/18) 142 head @ $580 per head

Operating loan (due 5/15/18) $55,000

Vehicles $16,500

Machinery & Equipment $80,500

Loan on beef cattle payment due 8/1/18 $9,000 principle, $4,200 interest

balance after 8/1/18 payment $38,000

Land market value 1020 acres @ $560 per acre

Beef breeding cows 106 head @ $650 per head

Bulls 4 head @ $1,200 per head

Checking $3,400

Account payable at IFA $1,800

Accounts receivable $2,800

Shop Equipment $2,500

Cummins diesel stock 300 shares @ $55 per share

Other information

Fred paid for $6,000 worth of seed to get a better price. Delivery on 3/15/18

Income and social security taxes due this year are estimated to be $8,200

Ten years ago Fred contributed $50,000 capital to get the business started.

Retained earnings since the beginning of the business equals $305,000

Questions:

What is Fred’s Owner’s Equity on February 1st?

How much working capital does Fred have?

What is his current ratio?

What is the debt/asset ratio?

What is the debt/equity ratio?

What is the equity/asset ratio?

Which part of the financial conditions from the balance sheet could be a concern and why?

Fred wants to borrow $50,000 to buy a tractor, it will cost $50,000. If you were the lender would you approve the loan to Fred? Why or why not?

If Fred gets the tractor loan, what affect will the transaction have to Fred’s owner’s equity if no other changes were made to the balance sheet?

Answer 1

Amount wheat Assets Amount Liabilities current Assets cudent Liabilities checking 3,400.00 Accounts payable 1,800.00 Accounts Recievable 2,800.00 Notes Payable 46,000.00 Prepaid Expenses 6,000.00 Bank Loan Coperating 55,000.00 Marketable securities (zona) 16,500.00 Loan's payable due (beef): | Inventories: Principle 19,000.00 Sorghum (4.100* $5.4) 22, 140.00 interest 4,200.00 Hay (75* $ 50) 3,750.00 Mortgage payable due: Livestock principle 16,000.00 feeders (142* $520) 82,360.00 Interest 20,200.00 calves (96 * $290) 27,840.00 Income and s. s. tan 8,200.00 Investimentazione 6,962.50 Total current Liabilities 1,60,400.00 Total current Assets 1,71,772 50 Non-current Liabilities Non Current Asets Lean(Beef). 38,000.00 vehicles 16,300.00 L Mortgage 2,28,000.00 Machinery and Equipment 80,500.00 Total Non-current Liabilities 2,66,000.00 Shop Equipment 2.500.00 Livestock: Total Liabilities 14,26,400.0o| Breeding (106* $ 650) 168,900.00 Brills (4 * $ 1,200) 4,800.00 owners' Equity Buildings and improvemente 58,000.00 contributed capital 50,000.00 land at Market value (10204396)3771,200.00 Retained earnings 3,05,000.00 Total Non-current Assets 18,02,400.00 value Adjustment Total owners Equity 5,47,772.50 1,92, 772.50 Total Assete _ 9,74, 172.50 Total Liabilities fowners Equestry 9,74,172.56

page-2 1.) fred's owner's Equity on February 1st, owner's Equity contributed capital 50,000.00 Retained earnings 3,05,000.00 value Adjustment * 1,92,772.50 Total owners Equity 5,47,772.50 * Value Adjustment = Total Balance sheet Amount. Total Liabilites - contoibuted capital- Retained Earnings. = $974,172.50 - $426,400 - $50,000 - $ 305,000 = $ 192,772.50 . 2) working capital of fred - Total Current Assets - Total current Liabilities = $171,772.50 - $160,400 = $11,372.50 3) Current Ratio - Total current Assets / Total current liabilities. = $171,772.50/ $160,400 = 107.

page-4 a) If no other changes have been made to the balance sheet, the total amount of balance sheet will remain the same whereas the amount of non-current liabilities will increase. To compensate the increase in the amount of non-current liabilities while mainting the total amount of balance sheet the amount of owner's equity will decrease.