Assignment Outline
Business Letter: Bank Loan Review
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 the following
issues…Students completes the following…
1.… summarize…focus on “the” one account that significantly “reduced” cash balances. Explain to
Bob how this one account could be the main reason the required $70,000 cash balance was not
maintained.
2…explain…note two other accounts that dramatically reduced cash flow/growth and are of particular
concern to you. Express an idea that might immediately improve this matter.
3…recognize…a couple of accounts that did increase cash flow. Make a specific note to Bob
regarding how and why these accounts lead to inflows of cash;
4...explain…to Bob three actions that would continually increase cash flow and “correct the situation.”
Explain that you look forward to meeting again in the 6 months in hopes of a loan approval.
Regards,
Bank Loan Review Team
RC 5-15
Case Study Bob Smith Loan Review Data for Teams
Comparative Balance Sheets and Cash Flow Statement Worksheet
ASSETS
Cash and marketable securities
Accounts receivable
Inventory
Other current assets
Total current assets
Gross Plant and equipment
Less: Accumulated depreciation
Net plant and equipment
$
$
$
$
$
$
$
$
2014
33,411
260,205
423,819
41,251
758,686
1,931,719
(419,044)
1,512,675
$
$
$
$
$
$
$
$
2013
16,566
318,768
352,740
29,912
717,986
1,609,898
(206,678)
1,403,220
Goodwill and other assets
Total Assets
$
$
382,145
2,653,506
$
$
412,565
2,533,771
LIABILITIES AND EQUITY
Accounts payable and accruals
Notes payable
$
$
378,236
14,487
$
$
332,004
7,862
Accrued income taxes
Total current liabilities
Long-term debt
$
$ $
$
21,125
413,848
679,981
$
$ $
$
16,815
356,681
793,515
Total liabilities
Preferred stock
Common stock (10,000 shares)
Additional paid in capital
Retained earnings
Less: Treasury stock
Total common equity
Total Liabilities and Equity
$
$
$
$
$
$
$
$
1,093,829
10,000
975,465
587,546
(13,334)
1,559,677
2,653,506
$
$
$
$
$
$
$
$
1,150,196
10,000
975,465
398,110
1,383,575
2,533,771
In addition, it was reported that the company had a net income of $3,155,848 and depreciation expenses were
equal to $212,366 during 2014.
Net Income
$3,155,848
Depreciation
$212,366
Dividends Paid
-$2,966,412
Teams
ent Worksheet
The bank told Bob to increase cash to $70,000
from 2013 to 2014.
But cash increased from $16,566 in 2013 to
just $33,411 in 2014, well short of $70,000,
... why...
Cash Up or Down
$
16,845
$
58,563 EXPLAIN
$
(71,079) EXPLAIN
$
(11,339)
$
(40,700)
(321,821)
212,366
$
(109,455) EXPLAIN
$
30,420
(119,735)
$
$
46,232 EXPLAIN
6,625 EXPLAIN
$
$
$
4,310
57,167
(113,534) EXPLAIN
(56,367)
0
0
189,436
(13,334)
176,102
119,735
epreciation expenses were
Explain how the six highlighted accounts
impacted cash flow from one year to the
next. The accounts either added or
reduced the cash balance from one year
to the next. I.e., the accounts were either
a Source or Use of cash.
This one worksheet provides all the data
you need to complete the project. You
may want to assign each team member a
respective 'Explain'.
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