P2-6 (Analyzing financial statements) The chief executive officer of Romney Heights has included the following information from the financial statements in a loan application submitted to Acme Bank. The company intends to acquire additional equipment and wishes to finance the purchase with a long-term note. 1997 1996 Balance Sheet Current assets $14,000 $ 12,000 Long-term assets 50,000 43,000 Current liabilities 7,000 6,000 Long-term liabilities 26,000 21,000 Contributed capital 25,000 25,000 Retained earnings 6,000 3,000 Income Statement Revenues $35,000 $ 32,000 Expenses 23,000 26,000 Statement of Cash Flows Net cash flow from operating activities $15,000 $ 9,000 Net cash flow from investing activities (14,000) (12,000) Net cash flow from financing activities 7,000 5,000 Change in cash balance $ 8,000 $ 2,000 Beginning cash balance 3,000 1,000 Ending cash balance $11,000 $ 3,000 Chapter 2 The Financial Statements 71 REQUIRED: Assume that you, a bank loan officer, review the financial statements and recommend whether Romney Heights should be considered for a loan. Support your recommendation with calcula¬ tions.