Case 5-Pop’s Recycling Company Use the Income Statement and Balance Sheet to ans
ID: 2736253 • Letter: C
Question
Case 5-Pop’s Recycling Company
Use the Income Statement and Balance Sheet to answer the following questions below:
Income Statement
1987
1988
1989
1990
1991
Sales
$8,200,000
$8,700,000
$9,500,000
$11,000,000
$12,000,000
Profit after Tax
$410,000
$440,000
$332,000
$330,000
$336,000
Balance Sheet
1987
1988
1989
1990
1991
Cash
$290,100
$239,266
$229,500
$215,500
$205,100
Accounts Receivable
418,200
488,070
532,950
425,000
634,742
Inventory
964,500
1,171,036
1,489,525
2,598,693
3,220,087
Total Current Assets
$1,672,800
$1,898,372
$2,251,975
$3,239,193
$4,059,929
Net Fixed Assets
2,509,200
2,786,061
3,150,513
3,138,540
3,452,383
Total Assets
$4,182,000
$4,684,433
$5,402,488
$6,377,733
$7,512,312
Accounts Payable
$385,020
$408,476
$647,869
$1,140,650
$1,550,175
Accrued Wages & Taxes
510,480
541,098
581,400
610,470
673,130
Notes payable - bank
150,000
78,000
75,000
75,000
75,000
Total current liabilities
$1,045,500
$1,027,574
$1,304,269
$1,826,120
$2,298,305
Long term debt
585,480
665,839
775,200
775,200
1,101,600
Owner's Equity
1,020,408
1,020,408
1,020,408
1,143,801
1,143,795
Earned Surplus
1,530,612
1,970,612
2,302,611
2,632,612
2,968,612
Total Liabilities & Equity
$4,182,000
$4,684,433
$5,402,488
$6,377,733
$7,512,312
Question 3. Determine the amount of external borrowing by the company, if any.
-This is probably the most important question of the case. You will need to prepare a forecasted net income for the 1992 income statement and continue to prepare the 1992 balance sheet. You will be required to use a number of assumptions, please list the assumptions made. The sales forecast is given as $14.5 million. Use this number to forecast the net income. Pop’s has not historically paid dividends so your calculated net income will represent the increase in earned surplus on the balance sheet (earned surplus = retained earnings). After you calculate the new retained earnings, go down the balance sheet and forecast each number (cash, accounts receivable, inventory, etc.). Keep the dollar balances for notes payable, long term debt, and owner’s equity (stock) at their 1991 balances to start. Add your total assets and compare them to your total liabilities and equity. (The total assets should exceeded the total liabilities and equity and the difference between them represents the amount of external borrowing.)
Question 10. How should the bank proceed?
- If you were the banker, would you give Pop’s a loan of the amount you calculated in part 3?
Income Statement
1987
1988
1989
1990
1991
Sales
$8,200,000
$8,700,000
$9,500,000
$11,000,000
$12,000,000
Profit after Tax
$410,000
$440,000
$332,000
$330,000
$336,000
Balance Sheet
1987
1988
1989
1990
1991
Cash
$290,100
$239,266
$229,500
$215,500
$205,100
Accounts Receivable
418,200
488,070
532,950
425,000
634,742
Inventory
964,500
1,171,036
1,489,525
2,598,693
3,220,087
Total Current Assets
$1,672,800
$1,898,372
$2,251,975
$3,239,193
$4,059,929
Net Fixed Assets
2,509,200
2,786,061
3,150,513
3,138,540
3,452,383
Total Assets
$4,182,000
$4,684,433
$5,402,488
$6,377,733
$7,512,312
Accounts Payable
$385,020
$408,476
$647,869
$1,140,650
$1,550,175
Accrued Wages & Taxes
510,480
541,098
581,400
610,470
673,130
Notes payable - bank
150,000
78,000
75,000
75,000
75,000
Total current liabilities
$1,045,500
$1,027,574
$1,304,269
$1,826,120
$2,298,305
Long term debt
585,480
665,839
775,200
775,200
1,101,600
Owner's Equity
1,020,408
1,020,408
1,020,408
1,143,801
1,143,795
Earned Surplus
1,530,612
1,970,612
2,302,611
2,632,612
2,968,612
Total Liabilities & Equity
$4,182,000
$4,684,433
$5,402,488
$6,377,733
$7,512,312
Explanation / Answer
Assumptions:
( $ 29,68,612 + $ 4,06,000 )
Yes, I would like to saction the loan to POP because he has huge cash balance & Accounts Receivable and having huge worth of current assets & fixed assets.
Forcasted
Income Statement
1992
Sales
$ 1,45,00,000
Profit After Tax
$ 4,06,000
Balance Sheet
1992
Assets
Cash
$ 1,94,700
Accounts Receivable
$ 8,44,484
Inventory
$ 38,41,481
Total Current Assets
$ 48,80,665
Net Fixed Assets
$ 37,66,226
Total Assets
$ 86,46,891
Liabilities
Accounts Payable
$ 19,59,700
Accrued Wages & Taxes
$ 7,35,790
Notes Payable – Bank
$ 75,000
Total Current Liabilities
$ 27,70,490
Long Term Debt
$ 11,01,600
Owners Equity
$ 11,43,795
Earned Surplus
$ 33,74,612
External Borrowings
$ 2,56,394
Total Liabities & Equity
$ 86,46,891
Forcasted
Income Statement
1992
Sales
$ 1,45,00,000
Profit After Tax
$ 4,06,000
Balance Sheet
1992
Assets
Cash
$ 1,94,700
Accounts Receivable
$ 8,44,484
Inventory
$ 38,41,481
Total Current Assets
$ 48,80,665
Net Fixed Assets
$ 37,66,226
Total Assets
$ 86,46,891
Liabilities
Accounts Payable
$ 19,59,700
Accrued Wages & Taxes
$ 7,35,790
Notes Payable – Bank
$ 75,000
Total Current Liabilities
$ 27,70,490
Long Term Debt
$ 11,01,600
Owners Equity
$ 11,43,795
Earned Surplus
$ 33,74,612
External Borrowings
$ 2,56,394
Total Liabities & Equity
$ 86,46,891
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