Farmers State Bank is considering a $500,000 loan to Willard Manufacturing. Thre

Question

Farmers State Bank is considering a $500,000 loan to Willard Manufacturing. Three items appearing on Willard's balance sheet are:

a. Cash on hand and in the bank, $20,000.

b. Accounts receivable of $60,000, less an allowance for uncollectibles of $15,000.

c. Accumulated Depreciation of $36,000.

1. Which of the balance sheet items is most relevant for the bank's loan decision?

--- My answer was cash since it has the most liquidity. Am I correct?

2. Which of the balance sheet items is most representationally faithful?

-- My answer was Accumulated Depecretation because there is a forumula to calculate it.

Are my answers correct?

Explanation / Answer

Hi Are these the only Balance sheet items listd or you have just posted your understanding? A Balance sheet analysis is more complex & Banklook at various Fincial ratios like Current Ratio, Quick Ratio, Working capital, etc to arrive at a Loan decision. However if above are the only options, then they seem correct with limited info provided by you. It is suggested that you post the complete question & then your solution so I can view the orig data & respond accordingly Hope above sermon helps :)

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