The balance sheet of the Thompson Trucking Company (TTC) follows: TTC had sales

Question

The balance sheet of the Thompson Trucking Company (TTC) follows: TTC had sales for the year ended 12/31/13 of $51.72 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends. Thus, TTC generates no funds from its earnings that can be used to expand its operations. (Assume that depreciation expense is just equal to the cost of replacing worn-out assets.). If TTC anticipates sales of $78.77 million during the coming year, develop a pro forma balance sheet for the firm for 12/31/14. Assume that current assets vary as a percent of sales, net fixed assets remain unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry. How much "new" financing will TTC need next year? What limitation does the percent-of-sales forecast method suffer from? Discuss briefly.

Explanation / Answer

Sales last year = 51.72 Million

Sales this year = 78.77 Million

% increase = (78.77-51.72)/51.72 = 52.3 % = 0.523

The new balance sheet is:

Assets Equity and liability Current assets 15.37 Accounts Payable 7.97 Net Fixed Assets 14.36 Notes Payable 2.44 Bonds payable 10.66 Common Equity 8.66 Total 29.73 Total 29.73

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.