Smiley Corp. and Tsang Inc. were organized in 2005. Both companies operate in the same line of business. The statements of financial position of the two companies at December 31, 2014, are as follows:

Required:
1. Eric Frechette wants to invest in one of these two companies by purchasing all of its shares. As a financial adviser to Mr. Frechette, which company would you select as an investment? Provide justification for your selection.
2. Each company applied to Development Bank for a loan of $ 20,000, payable in four months. As a bank loan officer, would you lend each company the requested amount? Explain.

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Smiley Corp. Statement of Financial Position December 31, 2014 Tsang Ino Statement of Financial Position December 31, 2014 Assets Cash Trade receivables Inventory Property, plant, and equipment Total Liabilities and Shareholders' Equity Liabilities Assets $ 7,200 14,400 7,600 244,400 $273,600 $ 17,000 Cash 30,000 Trade receivables 16,000 Inventory 117.600 Property, plant, and equipment 180,600 Total Liabilities and Shareholders' Equity Liabilities: Notes payable (short-term) Trade payables 18,600 Notes payable (short-term) 14,400 Trde payables 33,000 33,600 64,800 98.400 Total liabilities Total liabilities Shareholders equity: Contributed capital Retained earnings Shareholders' equity: 90,000 Contributed capital 57.600 Rtained earnings 108,000 67,200 175,200 $273,600 Total shareholders' equity 147,600 $180,600 Total Total shareholders equity Total