MT480 Team Project: Denial Letter Outline First Bank and Trust Bank Loan Review Committee 369 Peters Road Stetson, MN 32905 June 18, 2018 Dear Mr. Smith, Last week your loan request was presented to the bank’s loan committee. The outcome of the committee’s vote resulted in a non-renewal of the loan. The loan committee focused on positive and negative year to year cash flow trends. The more significant trends reviewed by the committee include: A. Positive Trends Explain how these three following accounts increased year to year cash balances and what can be done to ensure the situation continues in the upcoming year. Also comment on the concept applicable to the accounts; as underlined. • Decrease in Accounts Receivable and the impact on year to year changes in cash and discussion on 2/10 net 30 payment terms • Increase in Accounts Payable and the impact on year to year changes in cash and discussion on the filing of a mechanics lien • Increase in Wages Payable and the impact on year to year changes in cash and the accounting concept of Expense Accruals B. Negative Trends Explain how the three following accounts reduced year to year cash balances and what can be done to correct the situation in the upcoming year. Also comment on the concept applicable to the accounts; as underlined. • Build up of Inventory and the impact on year to year changes in cash and discussion on Economic Order Quantity for Inventory management • Purchase of Plant Property and Equipment and the impact on year to year changes in cash and Modified Accelerated Cost Recovery tax table • Pay down of Long Term Debt: Bank Note and the impact on year to year changes in cash and explain collateral and purpose of UCC1 filings Your Team will…prepare a summary conclusion will briefly explain to Bob the two most important strategies he should employ to realize improved cash flow trends. Your Team will…explain, in a most cordial manner, that you look forward to meeting again in six months in hopes of a loan approval. Regards, President, First Bank and Trust XYZ Bank told Bob to increase cash to $70,000 from 2016 to 2017. But cash increased from $ $70,000. In this Assignment you will review six select changes in Balance Sheet accounts, hig individual account changes impact overall cash flows. 2017 and ASSETS 2016 2017 Cash Comparative Balan 2016 $ $ 33,411 $ Accounts Receivable $ 260,205 $ 318,768 Inventory $ 423,819 $ 352,740 Other current assets Total Current Assets $ $ 41,251 758,686 $ $ 29,912 717,986 Plant Property and Equipment $ 1,512,675 $ 1,403,220 $ $ 382,145 2,653,506 $ $ 412,565 2,533,771 $ 378,236 $ 332,004 $ $ $ $ 14,487 21,125 413,848 $ $ $ $ 7,862 16,815 356,681 $ 679,981 $ 793,515 Goodwill and other assets Total Assets $ 16,566 LIABILITIES AND EQUITY Accounts Payable Wages Payable Accrued income taxes Total Current Liabilities Long-Term Debt: Bank Notes Total Liabilities Total Common Equity Total Liabilities and Equity $ $ $ 1,093,829 1,559,677 2,653,506 $ $ $ 1,150,196 1,383,575 2,533,771 ut cash increased from $16,566 in 2016 to just $33,41 lance Sheet accounts, highlighted in yellow, to bette 16 Comparative Balance Sheets Items 1 to 6. Note the $ value effect on Cash. Did the change in balances from one year to the next create (+) or 'use' (-) cash ? Note the accounting or finance issue related to each of the six accounts reviewed. 1 2 $ $ (11,339) (40,700) 3 $ 30,420 (119,735) 4 $ $ 5 4,310 57,167 6 57,173 176,102 119,735 6 in 2016 to just $33,411 in 2017, well short of ed in yellow, to better understand how these Denial Letter Proc The arrows present the 2016 account balance. The Team pr highlighted accounts. eets value effect on Cash. Did the change in balances from one year to the next create Note the accounting or finance issue related to each of the six accounts reviewed. 1.You collected outstanding Accounts Receivable (quickly) 1. Explain 2/10 net 30 payment terms and how these terms may enhance collections. 2.You built up/have more inventory on hand in 2014. 2. Explain Economic Order Quantity (EOQ). These six accounts correspon sent to the client and team m the six respective accounts. For example, the balance for A went down by $58,563. A Te the significance of that chang information and more in the how payment terms may influ needs explanation. 3.You made a down payment for PP&E in 2017 to secure favorable financing and the benefits of first year of accelerated depreciation. 3. Explain Modified Accelerated Cost Recovery System tax basis and how depreciation affects cash flows. 4. You owe suppliers balances at 90 days + past due for contract work. 4.What is the purpose of a Mechanics Lien for vendors demanding payment? 5. What is the Accrual Accounting concept and the reporting of Wages Payable? How is cash impacted? A balloon payment was due; explain the 'downside' of these types of loans. List which student did w top left of paper. Note did not submit work. Once the denial letter is to the instructor via the in file label. The graded paper, with Compiler. The Compiler will share instructor notes to the 6. Explain the relationship between the collateral position of the bank and UCC1 filing. Denial Letter Process to Prepare rrows present the 2016 to 2017 change in unt balance. The Team project focuses on the six ghted accounts. e six accounts correspond to the denial letter o the client and team members are assigned to x respective accounts. xample, the balance for Accounts Receivable down by $58,563. A Team member will analyze gnificance of that change and present that mation and more in the denial letter. The issue of payment terms may influence this account also s explanation. Denial Letter Process to Submit. An outline of the letter is provided. List which student did which of the six accounts at the top left of paper. Note any student in your group who did not submit work. Once the denial letter is complete, one file will be sent to the instructor via the Compiler: include team name in file label. The graded paper, with rubric, will be returned to Compiler. The Compiler will share final grading with the instructor notes to the team members.
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