1. Use the \"percent of sales method\" of preparing pro forma financial statemen

Question

1. Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. The firm's investment in inventory in the current year is $5,890,200. What is the projection for next year's inventory?

Select one:

a. $4,526,600

b. $7,657,260

c. $6,981,250

2

Which of the following is a spontaneous source of financing?

Select one:

a. common stock

b. paid-in-capital

c. accrued expenses

3.

MDX Sales Corp. is expecting a 10% increase in sales next year. MDX has an inventory balance of $1,000,000 and uses the percent of sales forecasting method. Which of the following could explain why the inventory forecast of $1,100,000 might be too high?

Select one:

a. A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales.

b. The company is going to change its depreciation method in the coming year.

c. The growth in sales could be as high as 15%.

Explanation / Answer

                                        1.00 Current Year Next Year Sales    27,800,000.00      36,140,000.00 COGS    17,528,000.00      22,786,400.00 Closing Inv      5,890,200.00        7,657,260.00 So Answer is B                                         2.00 Answer is b paid in capital                                         3.00 Current Year Next Year Inventory      1,000,000.00        1,100,000.00 a. A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales.

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