1.

Based on the unaudited financial statements and the statement made by the loan officer,

would the company qualify for the loan? Explain.

2.

Last year Russ purchased and installed new, more efficient equipment to replace an older

plastic injection molding machine. Russ had originally planned to sell the old machine

but found that it is still needed whenever the plastic injection molding process is a

bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he

suggested to Russ that the old machine be sold or at least reclassified as inventory on the

balance sheet because it could be readily sold. At present, the machine is carried in the

Property and Equipment account and could be sold for its net book value of $45,000. The

bank does not require audited financial statements. What advice would you give to Russ

concerning the machine? Support your advice with numbers.