This has been a bad year for Park Avenue Furniture. The firm increased sales revenues to $1,400,000, but total expenses ballooned to $1,750,000. Although management realized that some of the firm’s expenses were out of control, including cost of goods sold ($700,000), salaries ($450,000), and advertising costs ($140,000), it could not contain expenses. As a result, the furniture retailer lost $350,000. To make matters worse, the retailer applied for a $350,000 loan at Fidelity International Bank and was turned down. The bank officer, Mike Nettles, said the firm had a net loss for the last 12 months and that the firm already had too much debt. At that time, liabilities totaled

$420,000 and owners’ equity was $600,000.

Assignment

1. In groups of three or four, analyze the financial condition of Park Avenue Furniture.

2. Discuss why you think the bank officer turned down Park Avenue’s loan request.

3. Prepare a detailed plan of action to improve the financial health of Park Avenue Furniture over the next 12 months.