At year-end 2018, Wallace Landscaping’s total assets were $2.42 million, and its
ID: 2814043 • Letter: A
Question
At year-end 2018, Wallace Landscaping’s total assets were $2.42 million, and its accounts payable were $405,000. Sales, which in 2018 were $2.2 million, are expected to increase by 35% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $585,000 in 2018, and retained earnings were $385,000. Wallace has arranged to sell $190,000 of new common stock in 2019 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2019. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 4%, and 45% of earnings will be paid out as dividends. What was Wallace's total long-term debt in 2018? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What were Wallace's total liabilities in 2018? Do not round intermediate calculations. Round your answer to the nearest dollar. $ How much new long-term debt financing will be needed in 2019? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar. $
Explanation / Answer
1: Long term debt in 2018
Total assets= Total liabilities + equity = 2420,000
Less:Current liabilities= Accounts payable = 405000
Less: Common stock = 585000
Less: Retained earnings= 385000
Total long term debt = 1045000
2: Total liabilities in 2018 = Total long term debt + current liabilities
= 1045000+ 405000 = 1450,000
3:
Firstly we make the financial statements of the company
Income statement
Sales= 2,200,000*135% = 2970000
Net Income= 4% *2970,000=118800
Less: dividend= 45%*118800 = 53460
Net Income transferred to retained earnings = 65340
Total assets=Total liabilities + equity = 2420,000*135%=3267000
Less: Current liabilities= Accounts payable = 405000*135%= 546750
Less: Common stock = 585000-190000 = 395,000
Less: Retained earnings= 385000+65340 = 450340
Long term debt = 1874910
Additional debt required =New debt- old debt
1874910-1045000 = 829910
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