Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...

   

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Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. BRADBURN CORPORATION BALANCE SHEET MARCH 31 Assets 2018 2017 Cash $18,200 $12,500 Notes receivable 148,000 132,000 Accounts receivable (net) 131,800 125,500 Inventories (at cost) 105,000 50,000 Plant & equipment (net of depreciation) 1,449,000 1,420,500 Total assets $1,852,000 $1,740,500 Liabilities and Owners' Equity Accounts payable $79,000 $91,000 Notes payable 76,000 61,500 Accrued liabilities 9,000 6,000 Common stock (130,000 shares, $10 par) 1,300,000 1,300,000 Retained earnings 388,000 282,000 Total liabilities and stockholders' equity $1,852,000 $1,740,500 Cash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018. BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31 2018 2017 Sales revenue $3,000,000 $2,700,000 Cost of goods sold 1,530,000 1,425,000 Gross margin 1,470,000 1,275,000 Operating expenses 860,000 780,000 Income before income taxes 610,000 495,000 Income taxes (40%) 244,000 198,000 Net income $366,000 $297,000 aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold. Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes. Assume that the percentage changes experienced in fiscal year 2018 as compared with fiscal year 2017 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss. Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss. Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. BRADBURN CORPORATION BALANCE SHEET MARCH 31 Assets 2018 2017 Cash $18,200 $12,500 Notes receivable 148,000 132,000 Accounts receivable (net) 131,800 125,500 Inventories (at cost) 105,000 50,000 Plant & equipment (net of depreciation) 1,449,000 1,420,500 Total assets $1,852,000 $1,740,500 Liabilities and Owners' Equity Accounts payable $79,000 $91,000 Notes payable 76,000 61,500 Accrued liabilities 9,000 6,000 Common stock (130,000 shares, $10 par) 1,300,000 1,300,000 Retained earnings 388,000 282,000 Total liabilities and stockholders' equity $1,852,000 $1,740,500 Cash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018. BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31 2018 2017 Sales revenue $3,000,000 $2,700,000 Cost of goods sold 1,530,000 1,425,000 Gross margin 1,470,000 1,275,000 Operating expenses 860,000 780,000 Income before income taxes 610,000 495,000 Income taxes (40%) 244,000 198,000 Net income $366,000 $297,000 aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold. Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes. Assume that the percentage changes experienced in fiscal year 2018 as compared with fiscal year 2017 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss. Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss.

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