Case 1. (Learning Objectives 1, 2, 4: Using financial statements to evaluate a loan request)

Two businesses, Blue Skies Corp. and Open Road, Inc., have sought business loans from you.

To decide whether to make the loans, you have requested their Balance Sheets.

Requirement 1. Using only these Balance Sheets, to which entity would you be more comfortable lending money? Explain fully, citing specific items and amounts from the respective Balance Sheets. (Challenge)

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A1 1 2 Blue Skies Corp. Balance Sheet Assets August 31, 20X7 Liabilities 3 Cash 4 Accounts receivable $ 6,000 Accounts payable 11,000 Notes payable $ 40,000 90,000 5 Furniture 12,000 Total liabilities 130,000 6 Land 76,000 Owners' Equity 7 Equipment 45,000 Owners' equity 20,000 8 Total liabilities and 9 Total assets $ 150,000 owners' equity $ 150,000 10 A1 Open Road, Inc. Balance Sheet 5 1234567890 3 Cash Assets 4 Accounts receivable Merchandise inventory 6 Building Total assets August 31, 20X7 Liabilities $ 3,000 Accounts payable 12,000 Note payable 12,500 Total liabilities 37,500 Shareholders' Equity Shareholders' equity Total liabilities and $ 65,000 shareholders' equity $ 5,000 10,000 15,000 50,000 $ 65,000