Name : Matthew Terrence Amadeus Hosannah

NIM : 29123308

Accounting, Analysis, and Principles

Early in January 2016, Hopkins Company is preparing for a meeting with its bankers to
discuss a loan request. Its bookkeeper provided the following accounts and balances at
December 31, 2015.

Debit Credit

Inventory £ 65,300
Accounts Receivable (net) 38,500
Cash 75,000
Equipment (net) 84,000
Patents 15,000
Notes and Accounts Payable £ 52,000
Notes Payable (due 2017) 75,000
Share Capital—Ordinary 100,000
Retained Earnings 50,800

£ 277,800 £ 277,800

Except for the following items, Hopkins has recorded all adjustments in its accounts.
1. Net accounts receivable is comprised of £52,000 in accounts receivable and £13,500 in
allowance for doubtful accounts.
2. Cash includes £500 petty cash and £15,000 in a bond sinking fund.
3. Equipment had a cost of £112,000 and accumulated depreciation of £28,000.
4. On January 8, 2016, one of Hopkins’ customers declared bankruptcy. At December 31,
2015, this customer owed Hopkins £9,000.

Accounting
Prepare a corrected December 31, 2015, statement of financial position for Hopkins
Company.

Hopkins Company
Balance Sheet
December 31, 2015

Asset

Current Asset
- Inventories 38,500
- Accounts Receivable 65,000
Allowance for Doubtful Account (2,000-3,000) 43,000
- Prepaid Expense 4,500
TOTAL Current Asset 163,800

Non-Current Asset
Name : Matthew Terrence Amadeus Hosannah

NIM : 29123308

- Long Term Investment 15,000

- PPE
- Equipment 112,000
- Accumulated Depreciation (84,000-15,000) -28,000
- Intangible Asset
- Patent 15,000
TOTAL Non-Current Asset 114,000

TOTAL ASSET 277,800

**Liabilities**

Current Liabilities
- Notes and Account Payable 52,000

Non-Current Liabilities
- Notes Payable (due 2017) 75,000
TOTAL Liabilities 127,000

**Equity**
- Share Capital- Ordinary 100,000
- Retained Earnings 50,800
Total Equity 150,800

TOTAL LIABILITIES AND EQUIT 277,800

Analysis
Hopkins’ bank is considering granting an additional loan in the amount of £45,000, which
will be due December 31, 2016. How can the information in the statement of financial
position provide useful information to the bank about Hopkins’ ability to repay the loan ?

The imminent maturity of the loan necessitates an evaluation of the business entity’s
liquidity to determine its ability to repay. Consequently, the current ratio will be
computed for assessment purposes.

Current Ratio = Current Asset / Current Liabilities

= 163,800 / 52,000
= 3.15 Times

The current ratio is calculated by dividing current assets by current liabilities, resulting in
a ratio of 3.15 times, suggesting that Hopkins Company has more than three times the
current assets needed to cover its current liabilities.
Name : Matthew Terrence Amadeus Hosannah

NIM : 29123308

● The bank can analyze a company's financial health by looking at several factors from
the financial position statement.
● Two important factors are the company's total assets and liabilities.
● The bank will also calculate the debt-to-equity ratio, which compares the total debt
of the company to shareholder or owner's equity. A high ratio means the company is
relying too much on debt, while a low ratio indicates a healthier financial situation.
● In the example, the debt-to-equity ratio of Hopkins Company is calculated as 127,000
/ 150,800, which is equal to 0.8.
● Since the ratio is less than 1, it means that Hopkins Company does not rely too much
on debt. However, the ratio is still considered high.

Principles
In the upcoming meeting with the bank, Hopkins plans to provide additional information
about the fair value of its equipment and some internally generated intangible assets
related to its customer lists. This information indicates that Hopkins has significant
unrealized gains on these assets, which are not reflected on the statement of financial
position. What objections are the bank likely to raise about the usefulness of this
information in evaluating Hopkins for the loan renewal ?

● The bank can analyze a company's financial health by looking at several factors from
the financial position statement.
● Two important factors are the company's total assets and liabilities.
● The bank will also calculate the debt-to-equity ratio, which compares the total debt
of the company to shareholder or owner's equity. A high ratio means the company is
relying too much on debt, while a low ratio indicates a healthier financial situation.
● In the example, the debt-to-equity ratio of Hopkins Company is calculated as 127,000
/ 150,800, which is equal to 0.8.
● Since the ratio is less than 1, it means that Hopkins Company does not rely too much
on debt. However, the ratio is still considered high.

While Hopkins providing information about the fair value of its equipment and intangible
assets might suggest unrealized gains not reflected in the financial statements, the bank
is unlikely to object to the usefulness of this information. Banks typically don't consider
unrealized gains when evaluating loan applications; instead, they focus on an applicant's
liquidity and solvency. These metrics are determined using the company's current and
non-current assets and liabilities.