ACCT110 Accounting Principles I

Memo: Analyze Basic Financial Statements Assignment

This assignment is worth 5% of your grade

Deadline

Due by the end of Week 5 at 11:59 pm, ET.

Outcomes

Completing this Assessment will help you to meet the following:

Course Outcomes

Analyze basic financial statements using computerization.

Interpret and apply Generally Accepted Accounting Principles (GAAP) to analyze, record, and report financial information for a service business using computerization.

Institutional Outcomes

Quantitative and Scientific Reasoning - Follow established methods of inquiry and mathematical reasoning to form conclusions and make decisions.

Directions

Precision company wishes to expand but needs a $300,000 loan. The bank requests that Precision prepare a balance sheet and key financial ratios. Precision has kept formal records and is able to provide financial statements as of December 31, 2017. The industry debt ratio averages 45.00%. The industry return on assets is 2.0%.

You represent Ideal Bank and will present your findings in a memo to report the ratios for Precision, and identify the conclusion of your opinion reached from your analysis of the companys financials. The memo is to be copied and distributed to the VP of Ideal Bank, so a well-written and detailed memo is crucial. Your memo will be crucial to bank leaders decision to lend Precision the $300,000.

Make sure you use complete sentences. Check your work for proper spelling, grammar and punctuation. There is no set format. However, to receive full credit, you must fully answer each requirement below.

Required:

Use the financial statements below of Precision Co. to complete the requirements.

1a. Compute Precisions return on total assets for 2017 (Return on total assets is defined in your textbook).

1b. Identify and explain its building block category for financial statement analysis.

2a. Compute Precisions debt ratio for 2017 (Debt ratio is defined in your textbook).

2b. Identify and explain its building block category for financial statement analysis.

3. Based on the debt ratio, return on total assets, and your analysis of the financial statements, do you think Precision Co. qualifies for a $300,000 bank loan? Why or why not? Explain your decision.

Precision Company

Memorandum

To: Recipient Name

From: Your Name

CC: CC Name

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PRECISION COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Current assets S 79,000 42,000 96,000 120,000 00000 ...250,000 265,000 514.000 503,000 Cash 65,000 Merchandise inventory Plant assets Store equipment, net.. .._._ . . 400,000 350,000 50,000 625,000 675.000 100.000 100,000 1.170,000 ,75,000 1.684.000 $1,678,000 45,000 Liabilities Current liabilities ...$ 164,000 190,000 90,000 12,000 265,000 292,000 Accounts payable.... Short-term notes payable 75,000 26,000 . Long-term liabilities Notes payable (secured by mortgage on buildings.... 400.0004. Stockholders' Equity Retained earnings . . . 665,000 712,000 475,000 475,000 44,000 491.000 019,000 966,000 alue. otal stockholders' equity PRECISION COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Current assets S 79,000 42,000 96,000 120,000 00000 ...250,000 265,000 514.000 503,000 Cash 65,000 Merchandise inventory Plant assets Store equipment, net.. .._._ . . 400,000 350,000 50,000 625,000 675.000 100.000 100,000 1.170,000 ,75,000 1.684.000 $1,678,000 45,000 Liabilities Current liabilities ...$ 164,000 190,000 90,000 12,000 265,000 292,000 Accounts payable.... Short-term notes payable 75,000 26,000 . Long-term liabilities Notes payable (secured by mortgage on buildings.... 400.0004. Stockholders' Equity Retained earnings . . . 665,000 712,000 475,000 475,000 44,000 491.000 019,000 966,000 alue. otal stockholders' equity