Long-Term Financing Needed At year-end 2015, Wallace Landscaping’s total assets
ID: 2612258 • Letter: L
Question
Long-Term Financing Needed
At year-end 2015, Wallace Landscaping’s total assets were $1.9 million and its accounts payable were $330,000. Sales, which in 2015 were $2.5 million, are expected to increase by 30% in 2016. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $445,000 in 2015, and retained earnings were $335,000. Wallace has arranged to sell $130,000 of new common stock in 2016 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2016. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 60% of earnings will be paid out as dividends.
What was Wallace's total long-term debt in 2015? Round your answer to the nearest dollar.
$
What were Wallace's total liabilities in 2015? Round your answer to the nearest dollar.
$
How much new long-term debt financing will be needed in 2016? (Hint: AFN - New stock = New long-term debt.) Round your answer to the nearest dollar. Do not round intermediate calculations.
Explanation / Answer
Wallace Total LOng term Debt in 2015
Long Term Debt = Total Assets - (Accounts Payable + Common Stock+Retained Earnings)
Long Term Debt = 1900000-(330000+445000+335000) = $790000
Wallace Total Long Term debt in 2015 = $790000
Wallace Total Liabilities in 2015 = 330000+790000 = $1120000
2016
Ending Retained Earnings = BEg Retained Earnings+Profit -Dividend
Ending RE = 335000+(5% of3250000=162500)-(60% of 335000) =$296500
Long term Debt = Total Assets-(AccountsPAyable +Common Stock +Retained Earnings)
Long Term Debt in 2016 = $1429500
Assets Amount($) Liabilities Amount($) Total Assets 1900000 Accounts Payable 330000 Long Term Debt 790000 Common Stock 445000 Retained Earnings 335000Related Questions
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