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Fred Farmer needs to prepare a balance sheet for his bank. He spent the day getting the following information. Fred needs your help to build

Fred Farmer needs to prepare a balance sheet for his bank. He spent the day getting the following information. Fred needs your help to build a balance sheet and evaluate it. The information was gathered on 2/1/11

                                      

Fred Farmer  2/1/2011
AssetsLiabilities
CurrentCurrent
Checking$      3,400.00Accounts payableIFA$        1,800.00
Accounts Recievable$      2,800.00
Prepaid Expenses$      6,000.00Notes PayableFeeders$      46,000.00
Marketable SecuritiesBank$      55,000.00
Questar$    16,500.00Loans Payable
InventoriesBeefPrinciple$        9,000.00
Sorghum$    22,140.00Interest$        4,200.00
Hay$      3,750.00Mortage
LivestockPrinciple$      16,000.00
Feeders$    82,360.00Interest$      20,200.00
Calves$    27,840.00Income and S.S. tax$        8,200.00
Investment in growing crops$      6,982.50
Total Current$ 171,772.50Total Current$   160,400.00
Non CurrentNon-Current
Vehicles$    16,500.00Loan
Machinery and Equipment$    80,500.00Beef$      38,000.00
Shop Equipment$      2,500.00Mortage$    228,000.00
Livestock
Breeding$    68,900.00Total Non-current$   266,000.00
Bulls$      4,800.00
Buildings and Improvements$    58,000.00Total Liabilities$   426,400.00
Land (Market Value) 1020 Acres @ $560 per acre$ 571,200.00
Total Non-current$ 802,400.00Owners Equity
Contributed Capital$      50,000.00
Retained earnings$   305,000.00
Value Adjustment$   192,772.50
Total Assets$ 974,172.50Total Owners Equity$   547,772.50
Check$                    -  
Owners Equity$   547,772.50
Working Capital$     11,372.50
Current Ratio1.07
Debt to Equity0.78
Debt to Asset0.44
Equity to Asset0.56

Other information

Fred paid for $6,000 worth of seed to get a better price. Delivery on 3/15/11

Income and social security taxes due this year are estimated to be $8,200

Ten years ago Fred contributed $50,000 capital to get the business started.

Retained earnings since the beginning of the business equal $305,000

Questions:

1. Which part of the financial conditions from the balance sheet could be a concern and why?

2. Fred wants to borrow $50,000 to buy a tractor, it will cost $50,000.    If you were the lender would you approve the loan to Fred? Why or why not?

3. If Fred gets the tractor loan, what effect will the transaction have on Fred’s owner’s equity if no other changes were made to the balance sheet?

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