Financial statements
Assume that you recently accepted a position with Five Star National Bank &...

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Financial statements
Assume that you recently accepted a position with Five Star National Bank & Trust as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $300,000 from West Gate Auto Co., a small corporation. In support of the loan application, Joan Whalen, owner and sole stockholder, submitted a “Statement of Accounts” (trial balance) for the first year of operations ended October 31, 2014.

West Gate Auto Co. Statement of Accounts October 31, 2014

Debits Balances

Credit Balances

Cash

5,000

Billings Due from Others

40,000

Supplies (chemicals, etc.)

7,500

Building

222,300

Equipment

50,000

Amounts Owed to Others

31,000

Investment in Business

179,000

Service Revenue

215,000

Wages Expense

75,000

Utilities Expense

10,000

Rent Expense

8,000

Insurance Expense

6,000

Other Expenses

1,200

425,000

Explain to Joan Whalen why a set of financial statements (income statement, retained earnings statement, and balance sheet) would be useful to you in evaluating the loan request.
In discussing the “Statement of Accounts” with Joan Whalen, you discovered that the accounts had not been adjusted at October 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.
Assuming that an accurate set of financial statements will be submitted by Joan Whalen in a few days, what other considerations or information would you require before making a decision on the loan request?

Robert · Accepted Answer

Financial statements 
Assume that you recently accepted a position with Five Star National Bank & 
Trust as an assistant loan officer. As one of your first duties, you have been 
assigned the responsibility of evaluating a loan request for $300,000 from West 
Gate Auto Co., a small corporation. In support of the loan application, Joan 
Whalen, owner and sole stockholder, submitted a “Statement of Accounts” (trial 
balance) for the first year of operations ended October 31, 2014. 
West Gate Auto Co. Statement of Accounts October 31, 2014 
 
Debits Balances Credit Balances 
Cash 5,000 
 
Billings Due from Others 40,000 
 
Supplies (chemicals, etc.) 7,500 
 
Building 222,300 
 
Equipment 50,000 
 
Amounts Owed to Others 
 
31,000 
Investment in Business 
 
179,000 
Service Revenue 
 
215,000 
Wages Expense 75,000 
 
Utilities Expense 10,000 
 
Rent Expense 8,000 
 
Insurance Expense 6,000 
 
Other Expenses 1,200 
 
 
425,

Financial statements Assume that you recently accepted a position with Five Star National Bank & Trust as an assistant loan officer. As one of your first duties, you have been assigned the...

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