Financing Deficit Garlington Technologies Inc.\'s 2013 financial statements are

Question

Financing Deficit

Garlington Technologies Inc.'s 2013 financial statements are shown below:

Balance Sheet as of December 31, 2013

Income Statement for December 31, 2013

Suppose that in 2014 sales increase by 15% over 2013 sales and that 2014 dividends will increase to $196,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 8%, 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 AFN will be in the of 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

Answer:

Garlington Technologies Inc. Pro Forma Income Statement 31-Dec-14 Particulars 2013 Forecast Basis Additions 2014 Sales $3,600,000 1.15 * Sales 13 $4,140,000 Operating costs $3,279,720 0.911 * Sales14 $3,771,678 EBIT $320,280 $368,322 Interest $18,280 $12,480 EBT $302,000 $355,842 Taxes (40%) $120,800 $142,336.80 Net income $181,200 $213,505 Dividends: $1.08 Set by management 196000 * 100,000 = $108,000 Addition to RE: $73,200 $17,505 Garlington Technologies Inc. Balance Sheet 31-Dec-14 2013 Additions 2014 AFN Effects With AFN 2014 Cash 180000 207000 207000 Receivables 360000 414000 414000 Inventories 720000 828000 828000 Total current assets 1260000 1449000 1449000 Fixed assets 1440000 1656000 1656000 Total assets 2700000 3105000 3105000 Accounts payable 360000 414000 414000 Notes payable 156000 156000 $306,495 $462,495 Accruals 180000 207000 207000 Total current liabilities 696000 777000 1083495 Common stock 1800000 1800000 1800000 Retained earnings 204000 $17,505 $221,505 221505 Total liab. and equity 2700000 $2,798,505 $3,105,000 AFN $306,495 Cumulative AFN $306,495

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