Problem 24-3

Headland Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Headland and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,140 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,960 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Headlands cash flow problems are due primarily to the companys desire to finance a $297,340 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

HEADLAND CORPORATION BALANCE SHEET MARCH 31 2018 2017 Assets Cash Notes receivable Accounts receivable (net) Inventories (at cost) Plant & equipment (net of depreciation) $18,250 148,470 131,230 104,800 1,457,040 $1,859,790 $12,400 131,930 126,700 50,130 1,426,050 $1,747,210 Total assets ia bilities and Owners' Equit Accounts payable Notes payable Accrued liabilities Common stock (130,000 shares, $10 par) Retained earningsa $78,750 75,350 25,450 1,289,340 390,900 $1,859,790 $90,290 61,920 22,040 1,292,930 280,030 $1,747,210 Total liabilities and stockholders' equity aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018