Question
Farmers State Bank is considering a $500,000 loan to Willard Manufacturing. Three items appearing on Willard's balance sheet are: a. Cash on hand and in
Farmers State Bank is considering a $500,000 loan to Willard Manufacturing. Three items appearing on Willard's balance sheet are:
a. Cash on hand and in the bank, $20,000.
b. Accounts receivable of $60,000, less an allowance for uncollectibles of $15,000.
c. Accumulated Depreciation of $36,000.
1. Which of the balance sheet items is most relevant for the bank's loan decision?
--- My answer was cash since it has the most liquidity. Am I correct?
2. Which of the balance sheet items is most representationally faithful?
-- My answer was Accumulated Depecretation because there is a forumula to calculate it.
Are my answers correct?
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