Financial statements of a government or not-for-profit organization may not provide sufficient information on which to make a loan decisions.
Assume that you are a loan officer of a bank. A local church is seeking a $4 million, 20-year loan to construct a new classroom building. Church officers submit a comprehensive financial report that was audited by a reputable CPA firm. 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 0.20
Total Revenues $20.0
Less: total expenditures 2.0
Excess of revenues over expenditures $0.0
The church prepared its financial 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 $0.20 million. In addition, a note to the financial statements indicated that equipment is approximately $3 million. The church has no outstanding debt.
Write a 1000 word, APA style paper where you answer the following questions:
1. Is there any information in the financial statements that would make you reluctant to approve the loan? If so, indicate and explain.
2. Is there any other financial 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 financial statements of this church, or any comparable not-for-profit organization, as a basis for making loan decisions.
Be sure to include a title page and 2 references. Only one reference may come from the internet (not wikipedia). The other reference must be found in the Grantham University Online library. Only the body of the paper will count towards the word requirement. Please review the rubric below.