The balance sheet of the Thompson Trucking Company (TTC) follows: TTC has sales
ID: 2744416 • Letter: T
Question
The balance sheet of the Thompson Trucking Company (TTC) follows: TTC has sales for the year ended 12/31/2013 of $48.21 million. The firm follows a policy of paying all the earnings out to its common stockholders in cash dividends. Thus, TTC generated no funds from its earnings that can be used to expand its operations. (Assume that the depreciation expense is just equal to the cost of replacing worn-out assts.). Hint: Make sure to round all intermediate calculations to at least five decimal places.
A. If TTC anticipates sales of $79.22 million during the coming year, develop a pro forma balance sheet for the firm for 12/31/201. Assume the current assets vary as a percent of sales, net fixed assets remain unchanged, and the accounts payable vary as a percent of sales. Use notes payable as a balancing entry.
B. How much "new" financing will TTC need next year?
C. What limitation does the percent-of-sales forecast method suffer from? Discuss briefly
Thompson Trucking Company Balance Sheet, December 31, 2010 (in millions)
Current Assets
$10.52
Accounts Payable
$5.79
Net Fixed Assets
$14.26
Notes Payable
0.00
Total
$24.78
Bonds Payable
$10.46
Common Equity
$8.53
Total
$24.78
Thompson Trucking Company Balance Sheet, December 31, 2010 (in millions)
Current Assets
$10.52
Accounts Payable
$5.79
Net Fixed Assets
$14.26
Notes Payable
0.00
Total
$24.78
Bonds Payable
$10.46
Common Equity
$8.53
Total
$24.78
Explanation / Answer
A Statement of financial position for the year ended 12/31/2014 Assets $ in million Liabilities and equity $ in million Current Assets 17.29 Account Payables 9.51 Net Fixed Assets 14.26 Notes Payables 0 Bonds Payables 10.46 Common Equity 8.53 Total 31.55 Total 28.50 Old Sales 48.21 New Sales 79.22 New current assets 17.29 ($ 10.52 * 79.22 / 48.21) New accounts payables: 9.51 ($ 5.79 * 79.22 / 48.21) B New funds required = Difference between assets - liabilities = 31.55-28.50 = 3.04 m C The limitation with percent of sales method is that the future sales should be estimated otherwise less possibility to atchive.
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