Posted: May 2nd, 2016

What types of information about their businesses would owners be willing to provide bankers?

Using the Balance sheet dated 12/31/2012, record the transactions that happened during 2013 and complete a Balance sheet dated 12/31/2013. You must list any new assets and liabilities, but can keep the same amounts from the balance sheet dated 12/31/2012. Assume that the net income number includes all necessary revenues and expenses and that it ends up as cash.

2013 transactions:
a. Issued 1,000 shares of preferred stock in exchange for equipment
b. Sold 30,000 shares of common stock for $15/share
c. Purchased 5,000 shares of treasury stock for $20/share
d. Issued 2,000 shares of common stock in exchange for a new truck
e. Sold 7,000 shares of treasury stock for $30/share
f. Declared annual dividend of .60/common share to be paid on Jan 14, 2014
g. Jan 1 to Dec 31, 2013 net income was $850,000

Question: Loretta Smith, president and owner of Custom Enterprises, applied for a $250,000 loan from City National Bank. The bank requested financial statements from Custom Enterprises as a basis for granting the loan. Loretta has told her accountant to provide the bank with a balance sheet. Loretta has decided to omit the other financial statements because there was a net loss during the past year.

1. Is Loretta behaving in a professional manner by omitting some of the financial statements?

a. What types of information about their businesses would owners be willing to provide bankers? What types of information would owners not be willing to provide?

b. What types of information about a business would bankers want before extending a loan?

c. What common interests are shared by bankers and business owners?