On January 1 2016 three individuals organized West Company as
On January 1, 2016, three individuals organized West Company as a corporation. Each individual invested $ 10,000 cash in the business. On December 31, 2016, they prepared a list of resources owned (assets) and a list of debts (liabilities) to support the company’s request for a loan of $ 70,000 submitted to a local bank. None of the three investors had studied accounting. The two lists prepared were as follows:
Prepare a short memo indicating the following:
1. Which of these items do not belong on the statement of financial position (bear in mind that the company is considered to be separate from the owners)?
2. What additional questions would you raise about measurement of items on the lists? Explain the basis for each question.
3. If you were advising the local bank on its loan decision, which amounts on the lists would create special concerns? Explain the basis for each concern and include any recommendations that you have.
4. In view of your responses to (1) and (2), calculate the amount of shareholders’ equity as at December 31, 2016. Show your computations.
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