Using Financial Reports: Evaluating the Reliability of a Balance Sheet L01
Frances Sabatier asked a local bank for a $50,000 loan to expand her small company. The bank asked Frances to submit a financial statement of the business to supplement the loan application. Frances prepared the following balance sheet.
FS COMPANY Balance Sheet June 30,2012 | |
Assets |
|
Cash and investments | $ 9,000 |
Inventory | 30,000 |
Equipment | 46,000 |
Personal residence (monthly payments, $2,800) | 300,000 |
Remaining assets | 20,000 |
Total assets | $405,000 |
Liabilities |
|
Short-term debt to suppliers | $ 62,000 |
Long-term debt on equipment | 38,000 |
Total debt | 100,000 |
Stockholders’ Equity | 305,000 |
Total liabilities and stockholders’ equity | $405,000 |
Required:
The balance sheet has several flaws. However, there is at least one major deficiency. Identify it and explain its significance.
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