Fred Farmer needs to prepare a balance sheet for his bank. He spent the day getting the following information. Fred
Question:
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 | |||||||||
| Assets | Liabilities | |||||||||
| Current | Current | |||||||||
| Checking | $ 3,400.00 | Accounts payable | IFA | $ 1,800.00 | ||||||
| Accounts Recievable | $ 2,800.00 | |||||||||
| Prepaid Expenses | $ 6,000.00 | Notes Payable | Feeders | $ 46,000.00 | ||||||
| Marketable Securities | Bank | $ 55,000.00 | ||||||||
| Questar | $ 16,500.00 | Loans Payable | ||||||||
| Inventories | Beef | Principle | $ 9,000.00 | |||||||
| Sorghum | $ 22,140.00 | Interest | $ 4,200.00 | |||||||
| Hay | $ 3,750.00 | Mortage | ||||||||
| Livestock | Principle | $ 16,000.00 | ||||||||
| Feeders | $ 82,360.00 | Interest | $ 20,200.00 | |||||||
| Calves | $ 27,840.00 | Income and S.S. tax | $ 8,200.00 | |||||||
| Investment in growing crops | $ 6,982.50 | |||||||||
| Total Current | $ 171,772.50 | Total Current | $ 160,400.00 | |||||||
| Non Current | Non-Current | |||||||||
| Vehicles | $ 16,500.00 | Loan | ||||||||
| Machinery and Equipment | $ 80,500.00 | Beef | $ 38,000.00 | |||||||
| Shop Equipment | $ 2,500.00 | Mortage | $ 228,000.00 | |||||||
| Livestock | ||||||||||
| Breeding | $ 68,900.00 | Total Non-current | $ 266,000.00 | |||||||
| Bulls | $ 4,800.00 | |||||||||
| Buildings and Improvements | $ 58,000.00 | Total Liabilities | $ 426,400.00 | |||||||
| Land (Market Value) 1020 Acres @ $560 per acre | $ 571,200.00 | |||||||||
| Total Non-current | $ 802,400.00 | Owners Equity | ||||||||
| Contributed Capital | $ 50,000.00 | |||||||||
| Retained earnings | $ 305,000.00 | |||||||||
| Value Adjustment | $ 192,772.50 | |||||||||
| Total Assets | $ 974,172.50 | Total Owners Equity | $ 547,772.50 | |||||||
| Check | $ - | |||||||||
| Owners Equity | $ 547,772.50 | |||||||||
| Working Capital | $ 11,372.50 | |||||||||
| Current Ratio | 1.07 | |||||||||
| Debt to Equity | 0.78 | |||||||||
| Debt to Asset | 0.44 | |||||||||
| Equity to Asset | 0.56 | |||||||||
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?
Expert Answer:
Essentials of Corporate Finance
ISBN: 978-1259277214
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan