Chapter 4, Problem 4.3CP

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 proprietorship. In support of the loan application, Joan Whalen, owner, submitted a “Statement of Accounts” (trial balance) for the first year of operations ended October 31, 2016.

1. Explain to Joan Whalen why a set of financial statements (income statement, statement of owner’s equity, and balance sheet) would be useful to you in evaluating the loan request.

2. 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.

3. 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?