1. Handyman wishes to prepare forecasted balance sheet and income statement for
ID: 2458736 • Letter: 1
Question
1. Handyman wishes to prepare forecasted balance sheet and income statement for 2013. Use the original financial statement numbers for 2012 [ given above] as the basic for forecast, along with the following additional information:
a. Sales in 2013 are expected to increase by 40% over 2012 sales of $700.
b. In 2013, Handyman expected to acquire new property, plant and equipment costing $80.
c. The $160 in operating expenses reported in 2012 breaks down as follows: $5 depreciation expense, $155 other operating expenses.
d. No new long-term debt will be acquired in 2013
e. No cash dividends will be paid in 2013.
f. New short-term loans payable will be acquired in an amount sufficient to make Handyman’s current ratio in 2013 exactly equal to 2.0.
Construction of the forecasted statements of cash flows for 2013 involves analyzing for the forecasted income statement for 2013, along with the balance sheets for 2012 (actual) and 2013 (forecasted). For this exercise, add the following additional assumptions:
a.Cash will increase at the same rate at sales.
b. The forecasted amount of accounts receivable in 2013 is determined using the forecasted value for the average collection period (computed using the end-of-period account receivable balance). The average collection period for 2013 is expected to be 14.08 days.
c. The forecasted amount of inventory in 2013 is determined using the forecasted value for the number of days’ sales in inventory (computed using the end – of – period inventory balance). The number of day’s sales in inventory for 2013 is expected to be 107.6 days.
d. The forecasted amount of accounts payable in 2013 is determined using the forecasted value for the number of days’ purchases in accounts payable (computed using the end – of – period accounts payable balance). The number of day’s purchases in accounts payable for 2013 is expected to be 48.34 days.
Clearly state any additional assumption that you make.
2. Repeat (1), with the following changes in assumptions:
a. The average collection period is expected to be 906 days with day’s sales in inventory remaining at 107.6 days and days’ purchases in payables remaining at 48.34 days.
b. The average collection period is expected to be 20 days with days’ sales in inventory remaining at 107.6 days and day’s purchases in payables remaining at 48.34 days.
c. Days’ sales in inventory are expected to be 66.2 days with the average collection period remaining at 14.08 days and days’ purchases in payables remaining at 48.34 days.
d. Days’ sales in inventory are expected to be 150 days with the average collection period remaining at 14.08 days and days’ purchases in payables remaining at 48.34 days.
Comment on the forecasted values of cash from operating activities in 2013 under each of the scenarios given in (2).
Handyman Company Comparative Balance Sheet Year-End 2012 Assets Current assets: Cash Inventories Accounts receivable Total current assets 10.00 153.00 27.00 190.00 Fixed assets: 199.00 9.00 190.00 and equip Pro Accumulated depr Net fixed assets ation Total assets $380.00 Liabilities and owner's equi Current liabilities: Accounts payable Short-term loans payable Total current liabilities 74.00 10.00 $84.00 Long-term liabilities: Long-term debt Total long-term liabilities 207.00 $207.00 Total Liabilities $291.00 Owner's equi ital stock Retained earnings Total owner's equit 50.00 39.00 $89.00 Total lia bilities and owner's equi $380.00Explanation / Answer
Forecasted Income Statement:
* Operating Expenses are assumed to grow in the ratio of sales.
* Depreciation on additional fixed assets is assumed $2.
Balance Sheet:
* Inventory = 727 / 365 x 107.6 = 214.32
*Account Receivable = 980 / 365 x 14.08 = 37.80
*Accounts Payable = 727 / 365 x 48.34 = 96.28
* New Plant is assumed to be purchased by issuing Common Stock.
Amount($) Sales 980 Cost of goods sold 727 Gross Margin 253 Interest Expenses 9 Other Operating Expenses 224 Income before Income taxes 20 Income Taxes 6.67 Net Income 13.33Related Questions
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