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    Fawaz Irfan Mubarok - Task 5

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    Fawaz Irvan M

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    Fawaz Irfan Mubarok - Task 5

    Uploaded by

    Fawaz Irvan M
    166 views3 pages

    Original Title

    Fawaz Irfan Mubarok_Task 5

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    Copyright:

    © All Rights Reserved
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    166 views3 pages

    Fawaz Irfan Mubarok - Task 5

    Uploaded by

    Fawaz Irvan M

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Accounting, Analysis, and Principles

    Early in January 2016, Hopkins Company is preparing for a meeting with its bankers
    to discuss a loan request. Its bookkeeper provided the following accounts and balances
    at December 31, 2015.

    Debit Credit
    Inventory £ 65,300
    Accounts Receivable (net) 38,500
    Cash 75,000
    Equipment (net) 84,000
    Patents 15,000
    Notes and Accounts Payable £ 52,000
    Notes Payable (due 2017) 75,000
    Share Capital—Ordinary 100,000
    Retained Earnings 50,800
    £ 277,800 £ 277,800

    Except for the following items, Hopkins has recorded all adjustments in its accounts.
    1. Net accounts receivable is comprised of £52,000 in accounts receivable and £13,500
    in allowance for doubtful accounts.
    2. Cash includes £500 petty cash and £15,000 in a bond sinking fund.
    3. Equipment had a cost of £112,000 and accumulated depreciation of £28,000.
    4. On January 8, 2016, one of Hopkins’ customers declared bankruptcy. At December
    31, 2015, this customer owed Hopkins £9,000.

    Accounting
    Answer:

    Prepare a corrected December 31, 2015, statement of financial position for Hopkins
    Company.
    Hopkins Company
    Statement of Financial Position
    December 31, 2015

    Assets
    Non-current Assets
    - Long-term Investments
    Bond sinking fund £ 15,000
    PPE (Property, Plant, Equipment)
    Equipment £112,000
    Accumulated equipment depreciation (28,000) £84,000

    Intangible Assets
    Patents £15,000

    Current Assets
    - Inventories £65,000
    - Accounts receivable
    - (£52,000-9,000) £43,000
    - Allowance for doubtful accounts
    (13,500-$9,000) (£4,500) £38,500
    - Cash (£75,000-£15,000) £60,000
    - Total current assets £163,800

    Total Assets £277,800

    Equity and Liabilities


    Equity
    - Share capital - ordinary £100,000
    - Retained earnings 50,800
    - Total Shareholders’ equity £150,800

    Non-current liabilities
    - Notes Payable (due 2017) 75,000

    Current Liabilities
    - Notes and accounts payable 52,000
    - Total Liabilities £127,000

    Total Equity and Liabilities £277,800

    Analysis
    Hopkins’ bank is considering granting an additional loan in the amount of £45,000,
    which will be due December 31, 2016. How can the information in the statement of
    financial position provide useful information to the bank about Hopkins’ ability to repay
    the loan?
    In the statement of financial position, we can see that current assets of Hopkins can
    pay the rest of the notes and accounts payable. So it is safe to say that Hopkins can
    get the additional loan based on the statements
    The current notes account payable is £52,000 and the total current assets is £163,800,
    so Hopkins still has £111,800 of current assets. Using current assets to know the ability
    to get a loan because the current assets can be converted into cash.

    Principles
    In the upcoming meeting with the bank, Hopkins plans to provide additional information
    about the fair value of its equipment and some internally generated intangible assets
    related to its customer lists. This information indicates that Hopkins has significant
    unrealized gains on these assets, which are not reflected on the statement of financial
    position. What objections are the bank likely to raise about the usefulness of this
    information in evaluating Hopkins for the loan renewal?

    The bank might have an objection to the Hopkins loan renewal because in the
    intangible additional information total of current assets, there are inventories, accounts
    receivable, and allowances that are not in cash and not relevant. For other reasons, it
    might be because intangible assets and fair-value equipment are long-term assets that
    the bank cannot consider as company collateral.

    ***

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