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Stevens Textile\'s 2015 financial statements are shown below: Balance Sheet as o

ID: 2471074 • Letter: S

Question

Stevens Textile's 2015 financial statements are shown below:

Balance Sheet as of December 31, 2015 (Thousands of Dollars)

Income Statement for December 31, 2015 (Thousands of Dollars)

Suppose 2016 sales are projected to increase by 10% over 2015 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2016. The interest rate on all debt is 11%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2015, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.

What is the resulting total forecasted amount of the line of credit? Round your answers to the nearest whole number. Do not round intermediate calculations. Enter your answer in thousands of dollars.
Notes payable (including line of credit)     $  

Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0    Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600    Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860    Total assets $29,160    Total liabilities and equity $29,160

Explanation / Answer

ANS;

Pro Forma Income Statement

                                   December 31, 2013

                                 (Thousands of Dollars)

                                 Forecast              Pro Forma

                                        2006            Basis                     2007     

Sales                 $36,000         1.15 Sales06            $41,400

Operating costs       $32,440      0.9011 Sales07            37,306

EBIT               $ 3,560                                             $ 4,094

Interest                 460        0.10 Debt06                   560

EBT                $ 3,100                                            $ 3,534

Taxes (40%)            1,240                                               1,414

Net income           $ 1,860                                           $ 2,120

Dividends (45%)      $   837                                               $   954

Addition to RE       $ 1,023                                             $ 1,166

                   Stevens Textiles

                              Pro Forma Balance Sheet

                                   December 31, 2013

                                 (Thousands of Dollars)

                                      Forecast                                                                Pro Forma

                                       Basis %                                                                   after

                     2006    2007 Sales Additions      Pro Forma Financing     Financing

Cash              $ 1,0800      0.0300                     $ 1,242              $ 1,242

Accts receivable       6,480    0.1883              7,452                           7,452

Inventories            9,000     0.2005          10,350                         10,350

   Total curr.

     assets        $16,560                              $19,044                       $19,044

Fixed assets        12,600       0.3500            14,490                         14,490

   Total assets     $29,160                                       $33,534                       $33,534

Accounts payable   $ 4,320      0.1200                       $ 4,968                        $ 4,968

Accruals              2,880       0.0800              3,312                           3,312

Notes payable         2,100                               2,100         +2,128        4,228

   Total current

          liabilities     $ 9,300                              $10,380                       $12,508

Long-term debt        3,500                                 3,500                          3,500

   Total debt      $12,800                                      $13,880                     $16,008

Common stock       3,500                                 3,500                           3,500

Retained earnings   12,860                    1,166*      14,026                         14,026

   Total liabilities  

     and equity       $29,160                                  $31,406                       $33,534

                     AFN =                                                         $ 2,128

*From income statement.

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