The Booth Company\'s sales are forecasted to double from $1,000 in 2012 to $2,00

Question

The Booth Company's sales are forecasted to double from $1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012, balance sheet:

Booth's fixed assets were used to only 50% of capacity during 2012, but its current assets were at their proper levels in relation to sales. Spontaneous liabilities and all assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 6% and its payout ratio to be 55%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

Cash $  100 Accounts payable $   50 Accounts receivable 200 Notes payable 150 Inventories 200 Accruals 50 Net fixed assets 500 Long-term debt 400 Common stock 100 Retained earnings 250 Total assets $1000 Total liabilities and equity $1000

Explanation / Answer

Percentage of increase in sales = 1000/1000 =100%. Remaing all assets except fixed assets increased by 100%. but the fixed assets portion is $250. It is remaing capacity from the previous year. Calculation of Additional funds needed as follows. 2012 Balances($) Fore cast 2013 Balances($) Cash 100 *2.00 200 Accounts receivables 200 *2.00 400 Inventory 200 *2.00 400 Total currnt assets 500 *2.00 1000 Net fixed assets 500 *0.5 250 Totals assets 1000 1250 Accounts payable 50 50 Accruals 50 50 Note payable 150 150 Total current liabilities 250 250 Long-term debt 400 400 Total liabilities 650 650 common stock 100 100 retained earnings 250 250 total owmers equity 350 350 Total liabilities + Owner's equity 1000 1000 Additional funds needed 250 Therefore additional funds needed is $250. 2012 Balances($) Fore cast 2013 Balances($) Cash 100 *2.00 200 Accounts receivables 200 *2.00 400 Inventory 200 *2.00 400 Total currnt assets 500 *2.00 1000 Net fixed assets 500 *0.5 250 Totals assets 1000 1250 Accounts payable 50 50 Accruals 50 50 Note payable 150 150 Total current liabilities 250 250 Long-term debt 400 400 Total liabilities 650 650 common stock 100 100 retained earnings 250 250 total owmers equity 350 350 Total liabilities + Owner's equity 1000 1000 Additional funds needed 250

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