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Problem 24-3 (Essay) Bradburn Corporation was formed 5 years ago through a public subscription of common stock.


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Problem 24-3 (Essay)

Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

BRADBURN CORPORATION
BALANCE SHEET
MARCH 31
Assets 2018 2015
Cash $18,200 $12,500
Notes receivable 148,000 132,000
Accounts receivable (net) 131,800 125,500
Inventories (at cost) 105,000 50,000
Plant & equipment (net of depreciation) 1,449,000 1,420,500
    Total assets $1,852,000 $1,740,500
 
Liabilities and Owners’ Equity
Accounts payable $79,000 $91,000
Notes payable 76,000 61,500
Accrued liabilities 9,000 6,000
Common stock (130,000 shares, $10 par) 1,300,000 1,300,000
Retained earningsa 388,000 282,000
    Total liabilities and stockholders’ equity $1,852,000 $1,740,500
 
aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.

BRADBURN CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31
2018 2015
Sales revenue $3,000,000 $2,700,000
Cost of goods solda 1,530,000 1,425,000
Gross margin 1,470,000 1,275,000
Operating expenses 860,000 780,000
Income before income taxes 610,000 495,000
Income taxes (40%) 244,000 198,000
Net income $366,000 $297,000
 
aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold.
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Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn’s notes.


 


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