Financing Deficit Garlington Technologies Inc.\'s 2013 financial statements are
ID: 2717843 • Letter: F
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 $140,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 10%, 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 $2,700,000Explanation / Answer
Answer:
Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2014
Forecast 1st Pass AFN 2nd Pass
2013 Basis Additions 2014 Effects 2014
Sales $3,600,000 1.15 ´ Sales13 $4140,000 $4140,000
Operating costs 3,279,720 0.911 ´ Sales14 3,771540 3771540
EBIT $ 320,280 $ 368460 $ 368460
Interest 20,280 20,280 +12755** 33035
EBT $ 300,000 $ 348180 $ 335425
Taxes (40%) 120,000 139272 134170
Net income $ 180,000 $ 208908 $ 201255
Dividends: $1.08
´ 100,000 = $ 108,000 $ 140,000* +7440*** $ 147440
Addition to RE: $ 72,000 $ 68908 $ 53815
*Preliminary 2014 Dividends = $1.40 ´ 100,000 = $140,000.
**D in Interest = $127546 ´ 0.10 = $12755.
***D in 2014 Dividends = $127546/$24 ´ 1.40 = $7440.
D in Addition to RE = $53815 - $68908 = -$15093.
Garlington Technologies Inc.
Pro Forma Balance Statement
December 31, 2014
Forecast
Basis % 1st Pass AFN 2nd Pass
2013 2014 Sales Additions 2014 Effects 2014
Cash $ 180,000 0.05 $ 207000 $ 207,000
Receivables 360,000 0.1 414,000 414,000
Inventories 720,000 0.2 828,000 828,000
Total current
assets $1,260,000 $1,449,000 $1,449,000
Fixed assets 1,440,000 0.4 1,656,000 1,656,000
Total assets $2,700,000 $3105,000 $3105,000
Accounts payable $ 360,000 0.1 $ 414,000 $ 414,000
Notes payable 156,000 156,000 +127546 283546
Line of credit 0
Accruals 180,000 0.05 207,000 207,000
Total current
liabilities $ 696,000 $ 777,000 $ 904546
Common stock 1,800,000 1,800,000 +127546 1927546
Retained earnings 204,000 68908* 272908 -15093** 257815
Total liab.
and equity $2,700,000 $2849908 $3089907
AFN = $255092 $ 15093
Cumulative AFN = $255092 $ 270185
*See 1st pass income statement.
**See 2nd pass income statement.
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