Question

Early in January 2020, Hopkins plc is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2019.

   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 2021)       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, 2020, one of Hopkins' customers declared bankruptcy. At December 31, 2019, this customer owed Hopkins £9,000.

Accounting
Prepare a corrected December 31, 2019, statement of financial position for Hopkins plc.

Analysis
Hopkins' bank is considering granting an additional loan in the amount of £45,000, which will be due December 31, 2020. 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?

Answer 1

Statement of financial position for Hopkins plc. :

Analysis and Principles :