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.

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 ?

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 ?

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