Balance Sheet as of December 31, 2016 Income Statement for December 31, 2016 Sup

Question

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $164,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Cash $   180,000 Accounts payable $   360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $   696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000

Explanation / Answer

BALANCE SHEET 2016 Basis of projection Proforma 2017 2017 after EFN Cash 180000 5% of sales 216000 216000 Accounts receivable 360000 10% of sales 432000 432000 Inventory 720000 20% of sales 864000 864000 Current assets 1260000 1512000 1512000 Net fixed assets 1440000 40% of sales 1728000 1728000 TOTAL ASSETS 2700000 3240000 3240000 Accounts payable 360000 10% of sales 432000 432000 Notes payable 156000 156000 156000 Line of credit 0 0 378502 Accruals 180000 5% of sales 216000 216000 Current liabilities 696000 804000 1182502 Common stock 1800000 1800000 1800000 Retained earnings 204000 +53498 257498 257498 0 2861498 3240000 EFN-Forecasted Line of credit 378502 INCOME STATEMENT Sales 3600000 +20% 4320000 Operating costs 3279720 90.110333% of sales 3935664 EBIT 320280 384336 Interest 18280 156000*14% 21840 Pre-tax earnings 302000 362496 Taxes (40%) 120800 144998 Net Income 181200 217498 Dividend (45%) 108000 164000 Retained earnings 73200 53498

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