Reference no: EM131292207
Assume that you are a loan of?cer of a bank. A local church is seeking a $4 million, 20-year loan to construct a new classroom building. Church of?cers submit a comprehensive ?nancial report that was audited by a reputable CPA ?rm. In summary form (the actual statement showed details), the church’s statement of revenues and expenditures indicated the following (in millions):
Revenues from dues and contributions .... $1.8
Revenues from other sources ....... 0.2
Total revenues ............. $2.0
Less: total expenditures .......... 2.0
Excess of revenues over expenditures .... $0.0
The church prepared its ?nancial statements on a near-cash basis, accounting for all capital asset acquisitions as expenditures when acquired.
The church’s balance sheet reported assets, mainly cash and investments (at market value), of $0.2 million. In addition, a note to the ?nancial statements indicated that equipment is approximately $3 million. The church has no outstanding debt.
1. Is there any information in the ?nancial statements that would make you reluctant to approve the loan? If so, indicate and explain.
2. Is there any other ?nancial information of the type likely to be reported in a conventional annual report that you would like to review prior to making a loan decision? If so, indicate and explain.
3. Is there any other information, of any type, that you would like to review prior to making a loan decision? If so, indicate and explain.
4. Comment on the inherent limitations of the ?nancial statements of this church, or any comparable not-for-pro?t organization, as a basis for making loan decisions.
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