At year-end 2012, total assets for Ambrose Inc. were $1.9 million and accounts p

Question

At year-end 2012, total assets for Ambrose Inc. were $1.9 million and accounts payable were $420,000. Sales, which in 2012 were $2.6 million, are expected to increase by 30% in 2013. 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 $355,000 in 2012, and retained earnings were $275,000. Ambrose plans to sell new common stock in the amount of $180,000. The firm's profit margin on sales is 6%; 45% of earnings will be retained.

Explanation / Answer

Total liabilities = Accounts Payable + Long-term debt + Common stock + Retained earnings 1,900,000 = 420,000 + LTD + 355000+ 275,000 LTD = 850,000

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