At year-end 2011, total assets for Ambrose Inc. were $1.9 million and accounts p
ID: 2672949 • Letter: A
Question
At year-end 2011, total assets for Ambrose Inc. were $1.9 million and accounts payable were $340,000. Sales, which in 2011 were $2.5 million, are expected to increase by 20% in 2012. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $415,000 in 2011, and retained earnings were $245,000. Ambrose plans to sell new common stock in the amount of $140,000. The firm's profit margin on sales is 6%; 50% of earnings will be retained.1. What was Ambrose's total debt in 2011? Round your answer to the nearest cent.
$__________________
2. How much new long-term debt financing will be needed in 2012? Round your answer
to the nearest cent. (Hint: AFN - New stock = New long-term debt.)
$__________________
Explanation / Answer
1. What was Ambrose's total debt in 2011? Round your answer to the nearest cent.
Total liabilities = Accounts Payable + Long-term debt + Common stock + Retained earnings
1,900,000 = 340,000 + LTD + 415,000 + 245,000
LTD = 900,000
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