At year-end 2016, Wallace Landscaping’s total assets were $1.5 million and its a
ID: 2656175 • Letter: A
Question
At year-end 2016, Wallace Landscaping’s total assets were $1.5 million and its accounts payable were $395,000. Sales, which in 2016 were $2.0 million, are expected to increase by 30% in 2017. 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 $420,000 in 2016, and retained earnings were $260,000. Wallace has arranged to sell $160,000 of new common stock in 2017 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 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its profit margin on sales is 6%, and 35% of earnings will be paid out as dividends.
What was Wallace's total long-term debt in 2016? Round your answer to the nearest dollar.
$
What were Wallace's total liabilities in 2016? Round your answer to the nearest dollar.
$
How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Round your answer to the nearest dollar.
Explanation / Answer
2016 2017 Total assets $1,500,000.00 Accounts payable $395,000 Common stock 420000 Retained Earnings 260000 Sales 2000000 2600000 Assets/Sales 75% Accounts payable/sales 19.75% Total Liabilities + Equity = 1500000 Common Stock + Retained earnings + Accounts payable + Long Term liabilities = 1500000 420000+260000+395000+Long Term liabilities = 1500000 Long Term Liabilities = $1075000 Total Liabilities 395000+1075000 Total Liabilities 1470000 $1,470,000 Sales(2*130%) 2600000 Profit Margin 208000 Dividend 72800 Trf to retained earnings 135200 Total Assets(2600000*75%) 1950000 Accounts Payable(2600000*19.75%) 513500 Common Stock 580000 0 Retained Earnings 530200 Long Term Liabilities 326300 1950000
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