You have just been employed at a Junior Analyst at a bank and as your first assignment you have been asked to analyze the financial statements of a small snow removal business which has applied for a $100,000 loan to purchase additional equipment to expand its operations. a. Should the bank lend the company the funds? Support your recommendation with calculations

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You have just been employed at a Junior Analyst at a bank and as your first assignment you have been asked to analyze the financial statements of a small snow removal business which has applied for a $100,000 loan to purchase additional equipment to expand its operations. a. Should the bank lend the company the funds? Support your recommendation with calculations
Income Statement
Sales
Cost of Goods Sold
Gross profit
Salaries & Wages
Depreciation
Insurance
Advertising Expenses
Interest Expense
Income before taxes
Income tax
Net Profit
2021
500,000 550,000
300,000
375,500
200,000
174,500
77,000
100,000
2,000
3,000
6,000
8,000
4,000
2,571
8,143
9,500
102,857
51,429
30,857
15,429
72,000
36,000
2022
Transcribed Image Text:Income Statement Sales Cost of Goods Sold Gross profit Salaries & Wages Depreciation Insurance Advertising Expenses Interest Expense Income before taxes Income tax Net Profit 2021 500,000 550,000 300,000 375,500 200,000 174,500 77,000 100,000 2,000 3,000 6,000 8,000 4,000 2,571 8,143 9,500 102,857 51,429 30,857 15,429 72,000 36,000 2022
Balance Sheet
Current Assets
Cash
Inventory
Accounts Receivables
Prepaid Insurance
Total Current Assets
Long Lived Assets
Property Plant & Equipment
Total Assets
Liabilities & Owners' Equity
Current Liabilities
Accounts Payable
Salaries Payable
Interest Payable
Unearned Revenue
Short term notes
Total Current Liabilities
Long Term Liabilities
Notes Payable
Total Liabilities
Owner's Equity
Total Liab & Owners Equity
2021
10,000
150,000
39,650
350
200,000
45,000
10,000
25,000
20,000
80,000
180,000
2022
360,000 400,000
560,000 680,000
30,000
190,000
60,000
O
280,000
212,000
392,000
55,000
15,000
35,000
40,000
155,000
300,000
176,000
476,000
168,000
204,000
560,000 680,000
Transcribed Image Text:Balance Sheet Current Assets Cash Inventory Accounts Receivables Prepaid Insurance Total Current Assets Long Lived Assets Property Plant & Equipment Total Assets Liabilities & Owners' Equity Current Liabilities Accounts Payable Salaries Payable Interest Payable Unearned Revenue Short term notes Total Current Liabilities Long Term Liabilities Notes Payable Total Liabilities Owner's Equity Total Liab & Owners Equity 2021 10,000 150,000 39,650 350 200,000 45,000 10,000 25,000 20,000 80,000 180,000 2022 360,000 400,000 560,000 680,000 30,000 190,000 60,000 O 280,000 212,000 392,000 55,000 15,000 35,000 40,000 155,000 300,000 176,000 476,000 168,000 204,000 560,000 680,000
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