The proprietors of two businesses, L.L. Sams Company and Melinda Garcia Career Services, have sought business loans from you. To decide whether to make the loans, you have requested their balance sheet to view.
L.L. Sams Company Balance Sheet August 31, 2004
Assets
Cash $9,000
Accounts Receivable 14,000
Merchandise Inventory 85,000
Store supplies 500
Building 80,000
Furniture and fixtures 9,000
Land 14,000
Total assets $211,500
Liabilities
Accounts Payable 12,000
Note Payable 18,000
Total Liabilities 30,000
Owner's Equity
L.L. Sams, capital 181,500
Total Liabilities And owner's equity $211,500
Melinda Garcia Career Services Balance Sheet August 31, 2004
Assets
Cash $11,000
Accounts Receivable 7,000
Office supplies 1,000
Office furniture 56,000
Land 169,000
Liabilities
Accounts Payable $6,000
Note Payable 168,000
Total Liabilities 174,000
Owner's Equity
Melinda Garcia, capital 70,000
Total liabilities And owner's equity $244,000
I would appreciate the positive response and answer. Please explain I would like to understand this question. Many Thanks!!
Accounting is not my area. But the answer to this problem is obvious. Melinda is already up to her eyeballs in debt; she already owes 168,000+6000 on a business with total assets of 244,000. Further, the 168K far exceeds Melinda's personally invested capital of 70,000. Compare this to Sam.
To analyze the financial health and potential risk associated with providing business loans to L.L. Sams Company and Melinda Garcia Career Services, we need to examine their balance sheets.
The balance sheet provides information about a company's assets, liabilities, and owner's equity. It helps us understand the financial position of a business at a specific point in time.
Let's start by looking at L.L. Sams Company's balance sheet:
Assets:
- Cash: $9,000
- Accounts Receivable: $14,000
- Merchandise Inventory: $85,000
- Store Supplies: $500
- Building: $80,000
- Furniture and Fixtures: $9,000
- Land: $14,000
Liabilities:
- Accounts Payable: $12,000
- Note Payable: $18,000
Owner's Equity:
- L.L. Sams, Capital: $181,500
From the balance sheet, we can calculate the total assets, liabilities, and owner's equity. In this case, the total assets amount to $211,500, which is the sum of all the individual asset values. The total liabilities amount to $30,000, which includes accounts payable and the note payable. And the owner's equity is $181,500, which represents the capital invested by L.L. Sams.
Now let's move on to Melinda Garcia Career Services' balance sheet:
Assets:
- Cash: $11,000
- Accounts Receivable: $7,000
- Office Supplies: $1,000
- Office Furniture: $56,000
- Land: $169,000
Liabilities:
- Accounts Payable: $6,000
- Note Payable: $168,000
Owner's Equity:
- Melinda Garcia, Capital: $70,000
By adding up the values, we find that the total assets amount to $244,000, the total liabilities amount to $174,000, and the owner's equity is $70,000.
Comparing the two balance sheets, we can assess the financial situations of both companies.
L.L. Sams Company has a higher total assets value ($211,500) compared to its total liabilities ($30,000). This suggests that the company has a stronger financial position and a lower risk of defaulting on loans.
On the other hand, Melinda Garcia Career Services has a higher total liabilities value ($174,000) compared to its total assets ($244,000). This indicates that the company has a higher level of debt compared to its overall assets, making it potentially riskier to provide a loan.
Additionally, Melinda Garcia's note payable of $168,000 exceeds her personal investment capital of $70,000. This further raises concerns about the company's ability to fulfill its financial obligations.
In conclusion, based on the information provided in the balance sheets, L.L. Sams Company appears to be a more favorable candidate for receiving a business loan when compared to Melinda Garcia Career Services.