Home / Questions / Frances Sabatier asked a local bank for a $50000 loan to expand her small company. The ban...
Frances Sabatier asked a local bank for a $50,000 loan to expand her small company. The bank asked Frances to submit a financial statement of the business to supplement the loan application. Frances prepared the following balance sheet.
FS COM P ANY Balance Sheet J une 30, 2012
|
Assets Cash and investments |
$ 9,000 |
|
Inventory |
30,000 |
|
Equipment |
46,000 |
|
Personal residence (monthly payments, $2,800) |
300,000 |
|
Remaining assets |
20,000 |
|
T otal assets |
$405,000 |
|
Liabilities Short-term debt to suppliers |
$ 62,000 |
|
Long-term debt on equipment |
38,000 |
|
Total debt |
100,000 |
|
Stockholders’ Equity |
305,000 |
|
T otal liabilities and stockholders’ equity |
$405,000 |
Required:
The balance sheet has several flaws. However, there is at least one major deficiency. Identify it and ex- plain its significance.
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