Frances Sabatier asked a local bank for a $50,000 loan to expand her small company. The bank asked Frances to submit a financial statement of the business to supplement the loan application. Frances prepared the following balance sheet.
FS COMPUTING
Balance Sheet
June 30, 2016
Assets
Cash and investments...................................... $ 9,000
Inventory..................................................... 30,000
Equipment................................................... 46,000
Personal residence (monthly payments, $2,800)....... 300,000
Remaining assets............................................ 20,000
Total assets................................................... $405,000
Liabilities
Short-term debt to suppliers................................ $ 62,000
Long-term debt on equipment .............................. 38,000
Total debt...................................................... 100,000
Stockholders' equity.......................................... 305,000
Total liabilities and stockholders' equity................... $405,000
Required:
The balance sheet has several flaws. However, there is at least one major deficiency. Identify it and explain its significance.