Course › 3.7 The Balance Sheet and Net Worth › Free response
Free response · 3.7 The Balance Sheet and Net Worth
Exam-style concept-application task: apply the topic to a new business scenario. Suggested time 12–13 minutes.
FRQ — Business decision using financial criteria (3 points)
Pinecrest Garden Center's balance sheet at year-end: cash $8,000; accounts receivable $5,000; inventory (plants and soil) $27,000; greenhouses and equipment $140,000; brand trademark $5,000. Accounts payable $31,000; current portion of loan $12,000; accrued wages $4,000; long-term loan $60,000. Last year's balance sheet showed current assets of $52,000 and current liabilities of $30,000. The owner wants a $50,000 loan to add a café, and the bank asks for the balance sheet.
(A) Calculate Pinecrest's total assets, total liabilities, and owners' equity, and state whether net worth is positive. 1 pt
(B) Evaluate Pinecrest's working capital this year compared with last year, and explain what the change signals to the bank. 1 pt
(C) Recommend whether the owner should pursue the café loan now, using TWO balance-sheet criteria from the framework. 1 pt