CASE 2 Property Value: A Matter of Opinion? You are a loans officer with the Reliable Trust Company in Red Deer, Alberta. On March 30, 20-, a young businessman, Gary Marsden, comes to you in the hope of borrowing $75 000 for a business venture. When you inquire about his personal financial status, he presents you with the balance sheet shown below. Assets Bank Accounts Receivable Furniture Supplies Truck Building Lot Total Assets GARY MARSDEN BALANCE SHEET MARCH 20, 20- $ 2.000 I 500 -9 000 1 300 17 000 375 000 $405 800 Liabilities Accounts Payable Mortgage Payable Total Liabilities Owner's Equity Gary Marsden, Capital Total Liabilities and Equity $ 5 300 180 000 $185 300 220 500 $405 800 When examining this statement, you become concerned about the item Building Lot for $375 000. You have lived in Red Deer for several years and you know that there are not many properties near where the lot is located that are worth that much money. Gary informs you that he bought the property one month ago for $180 000 and that he borrowed the entire sum from his father. This is shown properly on the statement as Mortgage Payable.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question
Please I’m confused about this case and question
CASE 2
Property Value: A Matter of Opinion?
You are a loans officer with the Reliable Trust Company in Red Deer, Alberta.
On March 30, 20-, a young businessman, Gary Marsden, comes to you in the
hope of borrowing $75 000 for a business venture. When you inquire about his
personal financial status, he presents you with the balance sheet shown below.
Assets
Bank
Accounts Receivable
Furniture
Supplies
Truck
Building Lot
Total Assets
GARY MARSDEN
BALANCE SHEET
MARCH 20, 20-
$ 2 000
I 500
- 9.000
I 300
17 000
375 000
$405 800
Liabilities
Accounts Payable
Mortgage Payable
Total Liabilities
Owner's Equity
Gary Marsden, Capital
Total Liabilities and Equity
$5300
180 000
$185 300
220 500
$405 800
When examining this statement, you become concerned about the item
Building Lot for $375 000. You have lived in Red Deer for several years and you
know that there are not many properties near where the lot is located that are
worth that much money.
Gary informs you that he bought the property one month ago for $180 000
and that he borrowed the entire sum from his father. This is shown properly on
the statement as Mortgage Payable.
Transcribed Image Text:CASE 2 Property Value: A Matter of Opinion? You are a loans officer with the Reliable Trust Company in Red Deer, Alberta. On March 30, 20-, a young businessman, Gary Marsden, comes to you in the hope of borrowing $75 000 for a business venture. When you inquire about his personal financial status, he presents you with the balance sheet shown below. Assets Bank Accounts Receivable Furniture Supplies Truck Building Lot Total Assets GARY MARSDEN BALANCE SHEET MARCH 20, 20- $ 2 000 I 500 - 9.000 I 300 17 000 375 000 $405 800 Liabilities Accounts Payable Mortgage Payable Total Liabilities Owner's Equity Gary Marsden, Capital Total Liabilities and Equity $5300 180 000 $185 300 220 500 $405 800 When examining this statement, you become concerned about the item Building Lot for $375 000. You have lived in Red Deer for several years and you know that there are not many properties near where the lot is located that are worth that much money. Gary informs you that he bought the property one month ago for $180 000 and that he borrowed the entire sum from his father. This is shown properly on the statement as Mortgage Payable.
Your conversation with Gary indicates that he truly believes that the prop-
erty will increase in value in the near future and that he has listed it at the
amount he expects to sell it for. When you further investigate the location of the
property, you realize that it is a piece of land that took over two years to sell.
Questions
1. What is your opinion about listing the property at $375 000? What account-
ing standards are affected? Hint: Refer to Chapter 2.
2. Write out what you would say to Gary on this subject.
3. Would you lend Gary the money on the basis of only the financial data he
has given to you? Compose a business letter responding to Gary's request.
Transcribed Image Text:Your conversation with Gary indicates that he truly believes that the prop- erty will increase in value in the near future and that he has listed it at the amount he expects to sell it for. When you further investigate the location of the property, you realize that it is a piece of land that took over two years to sell. Questions 1. What is your opinion about listing the property at $375 000? What account- ing standards are affected? Hint: Refer to Chapter 2. 2. Write out what you would say to Gary on this subject. 3. Would you lend Gary the money on the basis of only the financial data he has given to you? Compose a business letter responding to Gary's request.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Financial Statements
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education