Stevens Textiles%u2019s 2013 financial statements are shown here: Balance Sheet
ID: 2627200 • Letter: S
Question
Stevens Textiles%u2019s 2013 financial statements are shown here:
Balance Sheet as of December 31, 2013 (Thousands of Dollars)
Cash $ 1,080 Accounts payable $ 4,320
Receivables 6,480 Accruals 2,880
Inventories 9,000 Line of credit 0
Total current assets $16,560 Notes payable 2,100
Net fixed assets 12,600 Total current liabilities $ 9,300
Mortgage bonds 3,500
Common stock 3,500
______ Retained earnings 12,860
Total assets $29,160 Total liabilities and equity $ 29,160
Income Statement for December 31, 2013 (Thousands of Dollars)
Sales $36,000
Operating costs 32,440
Earnings before interest and taxes $ 3,560
Interest 460
Pre-tax earnings $ 3,100
Taxes (40%) 1,240
Net income $ 1,860
Dividends (45%) $ 837
Addition to retained earnings $ 1,023
a. Suppose 2014 sales are projected to increase by 15% over 2013 sales. Use the
forecasted financial statement method to forecast a balance sheet and income
statement for December 31, 2014. The interest rate on all debt is 10%, and cash
earns no interest income. Assume that all additional debt in the form of a line of
credit is added at the end of the year, which means that you should base the
forecasted interest expense on the balance of debt at the beginning of the year. Use
the forecasted income statement to determine the addition to retained earnings.
Assume that the company was operating at full capacity in 2013, that it cannot sell
off any of its fixed assets, and that any required financing will be borrowed as
notes payable. Also, assume that assets, spontaneous liabilities, and operating costs
are expected to increase by the same percentage as sales. Determine the additional
funds needed.
b. What is the resulting total forecasted amount of the line of credit?
I'm having difficulties figuring out how you determine what the input values are. As you answer, can you please alos explain how you arrived at the input amounts?
Explanation / Answer
a. Stevens Textiles Pro Forma Income Statement December 31, 2014
Stevens Textiles Pro Forma Balance Sheet
December 31, 2014 (Thousands of Dollars)
b.
Notes payable: $4228
2013 Forecast Basis 2014 Sales 36000 1.15 x Sales 41,400 Operating Costs 32,440 .9011 x sales (07) 37,306 EBIT 3,560 4,094 Interest 460 .1 x Debt (06) 560 EBT 3,100 35,34 Taxes (40%) 1,249 1,414 Net Income 1,860 2,120 Dividends 837 954 Addition to RE 1,023 1,166Related Questions
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