In 2016, Company ABC reported revenue of $8,000,000, net income of $400,000, and
ID: 2795829 • Letter: I
Question
In 2016, Company ABC reported revenue of $8,000,000, net income of $400,000, and dividends of $200,000. Company ABC expects that revenues will increase to $10,000,000 in 2017. In 2016, ABC’s total assets consisted of marketable securities of $1,000,000; accounts receivable of $2,000,000; inventories of $2,000,000; and equipment of $1,000,000 (which was being used at 80% capacity). Total liabilities consisted of accounts payable of $500,000; accrued salary, wages and benefits of $500,000; and long-term debt of 1,000,000. Owner’s equity was $4,000,000 (common stock of $2,000,000 and retained earnings of $2,000,000). Calculate the following for 2017: Total Assets, Total Liabilities, Owner’s Equity and External Financing Needed (EFN).
Explanation / Answer
In 2016:
Total Assets = 1000000+2000000+2000000+1000000 = 6000000
Total Liabilities = 500000+500000+1000000 = 2000000
Total Equity = 4000000
Assuming Revenue to assets ratio remain same, the assets in 2017 should be:
= 6000000*10000000/8000000 = 7,500,000
Equity = 4,000,000+Dividend in 2016 = 4,000,000+200,000 = 4,200,000
Liabilities = 7,500,000-4,200,000 = 3,300,000
External financing needed = 3,300,000 - 2,000,000 = 1,300,000
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