Moon Corporation and Star Corporation are in the same line of business and both were recently organized, so it may be assumed that the recorded costs for assets are close to current market values. The balance sheets for the two companies are as follows at July 31, 2015:

Instructions

a. Assume that you are a banker and that each company has applied to you for a 90-day loan of $12,000. Which would you consider to be the more favorable prospect? Explain your answer fully.

b. Assume that you are an investor considering purchasing all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully. (For either decision, additional information would be useful, but you are to reach your decision on the basis of the information available.)

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MOON CORPORATION BALANCE SHEET JULY 31, 2015 Assets Liabilities & Owners' Equity $ 18,000 Cash.. Liabilities: Accounts Receivable .. Office Equipment . 26,000 Notes Payable (due in 60 days). $ 12,400 1,200 Building 38,000 Accounts Payable. 9,600 $ 22,000 Land 37,200 Total liabilities . Stockholders' equity: Capital Stock ...... Retained Earnings... $60,000 38,400 98,400 $120,400 $120,400 Total Total .. ... STAR CORPORATION BALANCE SHEET JULY 31, 2015 Assets Liabilities & Owners' Equity $ 4,800 9,600 Cash... Liabilities: Accounts Receivable .. Notes Payable Office Equipment .. 12,000 (due in 60 days) ... $ 22,400 Building 60,000 Accounts Payable.. 43,200 Land.. 96,000 Total liabilities $ 65,600 Stockholders' equity: Capital Stock ... Retained Earnings... $72,000 44,800 116,800 Total $182,400 Total ... $182,400