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FRC Task 5

The document is Hopkins Company's statement of financial position for December 31, 2015. It shows total assets of $277,800 including non-current assets of $114,000 and current assets of $163,800. Total equity is $150,800 consisting of shareholder equity of $100,000 and retained earnings of $50,800. Total liabilities are $127,000 including current liabilities of $52,000 and non-current liabilities of $75,000. The current ratio is calculated at 3.15 times, indicating Hopkins Company can repay its loans based on having over two times the current assets needed to cover current liabilities.

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Denisa Naura Mahadhiyasa
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30 views

FRC Task 5

The document is Hopkins Company's statement of financial position for December 31, 2015. It shows total assets of $277,800 including non-current assets of $114,000 and current assets of $163,800. Total equity is $150,800 consisting of shareholder equity of $100,000 and retained earnings of $50,800. Total liabilities are $127,000 including current liabilities of $52,000 and non-current liabilities of $75,000. The current ratio is calculated at 3.15 times, indicating Hopkins Company can repay its loans based on having over two times the current assets needed to cover current liabilities.

Uploaded by

Denisa Naura Mahadhiyasa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FRC TASK 5

Denisa Naura Mahadhiyasa


29123145 - YP69A
Syndicate 6

Hopkins Company
Statement of Financial Position
December 31st, 2015

Assets
Non-Current Assets
Long-Term Investment

Bonds Sinking Funds 15,000

Property, Plant, and


Equipment

Equipment 112,000

Less: Accumulated Depreciation (28,000) 84,000

Intangible Assets

Patent 15,000

Total Non-Current Assets 114,000

Current Assets
Inventory 65,300

Accounts Receivable 52,000

Less: Allowance for doubtful


(13,500) 38,500
account

Cash 59.500
Petty Cash 500 60.000

Total Current Assets 163.800

Total Assets 277,800

Equity and Liabilities


Equity

Shareholder’s Equity Stock 100,000

Retained Earnings 50,800

Total Equity 150,800

Liabilities

Current LIabilities

Note and Accounts Payable 52,000

Non-Current Liabilities

Note Payable (due 2017) 75,000

Total Liabilities 127,000

Total Equity and Liabilities 277,800

Analysis Answer

Current ratio = current assets


───────────────
current liabilities

= 163,800
──────────
52,000

Current ratio = 3.15 times


So, Hopkins Company can repay the loan because the current ratio is more than two
times, it means ideal that business entity can repay the loan.

Note : To find useful information in the statement of financial position (also known as the
balance sheet) that demonstrates an entity's ability to repay a loan, lenders and
investors typically focus on specific components and ratios. Here's how you can assess
a company's ability to repay a loan using information from the balance sheet:

Current Assets: Current assets are assets expected to be converted into cash or used
up within one year. These include cash, accounts receivable, inventory, and short-term
investments. Lenders are interested in the total value of current assets as they
represent the company's liquidity. A higher level of current assets suggests a better
ability to meet short-term obligations, including loan repayments.

Current Liabilities: Current liabilities are obligations due within one year, such as
accounts payable and short-term debt. Comparing current liabilities to current assets
gives you the current ratio. A higher current ratio indicates a more vital ability to cover
short-term debt obligations.

Current Ratio = Current Assets / Current Liabilities

Principles Answer
The objection about the usefulness that the bank is likely to raise for evaluating Hopkins
for the loan renewal

1. Evaluating the capital structure, Hopkins equity assessed is healthy because


the total equity Hopkins, 150,800 more than the total liabilities, 127,000 so that it
can cover the liabilities.

2. Assess risk and future cash flows, because SoFP can help predict amounts,
timing, and uncertainty of future cash flows

3. Assess the company’s for,

Liquidity → The balance sheet provides insights into its liquidity, which is its
ability to meet short-term financial obligations. Banks want to ensure the
company has sufficient current assets (e.g., cash, accounts receivable) to cover
current liabilities (e.g., accounts payable, short-term debt). A healthy liquidity
position indicates that the company can make timely loan payments.

Solvency → Banks examine the balance sheet to assess its solvency, which is
its ability to cover its long-term financial obligations. They want to see if the
company has more assets than liabilities, indicating that it can repay the loan. A
strong solvency position is a positive factor in loan renewal decisions.

Financial flexibility. → Financial flexibility refers to a company's ability to adapt


and respond to various financial challenges, opportunities, and changes in its
operating environment. Financial flexibility encompasses a range of financial
strategies and practices that enable a company to maintain its financial health
and achieve its goals.

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