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 corporation. In support of the loan application, Joan Whalen, owner, submitted a €œStatement of Accounts€ (trial balance) for the first year of operations ended October 31, 20Y3.

1. Explain to Joan Whalen why a set of financial statements (income statement, statement of stockholders€™ equity, and balance sheet) would be useful to you in evaluating the loan request.
2. In discussing the €œStatement of Accounts€ with Joan Whalen, you discovered that the accounts had not been adjusted at October 31. Analyze the €œStatement 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?

Transcribed Image Text:

West Gate Auto Co. Statement of Accounts October 31, 20Y3 Assets Cash... 5,000 Billings Due from Others 40,000 Supplies (chemicals, etc.). 7,500 Building .... 222,300 50,000 Equipment Amounts Owed to Others. 31,000 Investment in Business. 179,000 215,000 Service Revenue Wages Expense . 75,000 Utilities Expense . Rent Expense .. 10,000 8,000 Insurance Expense.. 6,000 Other Expenses. 1,200 425,000 425,000