2 This one is very important for me, i need details, please make sure giving me

Question

2 This one is very important for me, i need details, please make sure giving me the right process and answers, thank you very much!


Use the following information and the percent-of-sales method to answer the following question(s). Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)

Banner, Inc. Balance Sheet
December 31, 2004
Assets
Current assets $890,000
Net fixed assets 1,000,000
Total $1,890,000
Liabilities and Owners' Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital) 360,000
Retained earnings 270,000
Common equity 630,000
Total 1,890,000


Banner's projected fixed assets for 2005 are:
Answer

A$1,125,000.

B$1,250,000.

C$2,385,000.

D$1,000,000.

Explanation / Answer

Step 1: Find the what percentage 2004's fixed assets are of 2004 sales.
1000000/1600000 = 62.5%

Step 2: Use the percentage in step one to find fixed assets of 2005 sales.
62.5% X 2000000 = 1250000 projected fixed assets.

Therefore, the correct answer is B) $1,250,000

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