Fred Farmer needs to prepare a balance sheet for his bank. He spent the day getting the following information. Fred needs your help to build a balance sheet and evaluate it. The information was gathered on 2/1/11

                                      

				Fred Farmer		2/1/2011
Assets							Liabilities
Current							Current
Checking					$      3,400.00		Accounts payable		IFA	$        1,800.00
Accounts Recievable					$      2,800.00
Prepaid Expenses					$      6,000.00		Notes Payable		Feeders	$      46,000.00
Marketable Securities									Bank	$      55,000.00
	Questar				$    16,500.00		Loans Payable
Inventories								Beef	Principle	$        9,000.00
	Sorghum				$    22,140.00				Interest	$        4,200.00
	Hay				$      3,750.00		Mortage
Livestock									Principle	$      16,000.00
	Feeders				$    82,360.00				Interest	$      20,200.00
	Calves				$    27,840.00		Income and S.S. tax			$        8,200.00
Investment in growing crops					$      6,982.50
Total Current					$ 171,772.50		Total Current			$   160,400.00
Non Current							Non-Current
Vehicles					$    16,500.00		Loan
Machinery and Equipment					$    80,500.00			Beef		$      38,000.00
Shop Equipment					$      2,500.00		Mortage			$    228,000.00
Livestock
	Breeding				$    68,900.00		Total Non-current			$   266,000.00
	Bulls				$      4,800.00
Buildings and Improvements					$    58,000.00		Total Liabilities			$   426,400.00
Land (Market Value) 1020 Acres @ $560 per acre					$ 571,200.00
Total Non-current					$ 802,400.00		Owners Equity
								Contributed Capital		$      50,000.00
								Retained earnings		$   305,000.00
								Value Adjustment		$   192,772.50
Total Assets					$ 974,172.50		Total Owners Equity			$   547,772.50
								Check		$                    -
Owners Equity		$   547,772.50
Working Capital		$     11,372.50
Current Ratio		1.07
Debt to Equity		0.78
Debt to Asset		0.44
Equity to Asset		0.56

Other information

Fred paid for $6,000 worth of seed to get a better price. Delivery on 3/15/11

Income and social security taxes due this year are estimated to be $8,200

Ten years ago Fred contributed $50,000 capital to get the business started.

Retained earnings since the beginning of the business equal $305,000

Questions:

1. Which part of the financial conditions from the balance sheet could be a concern and why?

2. Fred wants to borrow $50,000 to buy a tractor, it will cost $50,000.    If you were the lender would you approve the loan to Fred? Why or why not?

3. If Fred gets the tractor loan, what effect will the transaction have on Fred’s owner’s equity if no other changes were made to the balance sheet?