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inancing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December...

inancing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

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 $2,700,000

Income Statement for December 31, 2016

Sales $3,600,000
Operating costs 3,279,720
EBIT $  320,280
Interest 18,280
Pre-tax earnings $  302,000
Taxes (40%) 120,800
Net income 181,200
Dividends $  108,000

Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, 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 all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2017
Sales $
Operating costs $
EBIT $
Interest $
Pre-tax earnings $
Taxes (40%) $
Net income $
Dividends: $
Addition to RE: $


Garlington Technologies Inc.
Pro Forma Balance Statement
December 31, 2017
Cash $
Receivables $
Inventories $
Total current assets $
Fixed assets $
Total assets $
Accounts payable $
Notes payable $
Accruals $
Total current liabilities $
Common stock $
Retained earnings $
Total liabilities and equity $

Solutions

Expert Solution

Income Statement
2016 Forecast 2017
Sales $   36,00,000 +20% $               43,20,000
Operating costs $   32,79,720 91.10% of sales $               39,35,664
EBIT $     3,20,280 $                 3,84,336
Interest $        18,280 $156000*58% $                     12,480
Pre-tax earnings $     3,02,000 $                 3,71,856
Taxes (40%) $     1,20,800 $                 1,48,742
Net income $     1,81,200 $                 2,23,114
Dividends: $     1,08,000 $                 2,00,000
Addition to RE: $        73,200 $                     23,114
Balance Statement
2016 Forecast 2017
Cash $     1,80,000 5% of sales $                 2,16,000
Receivables $     3,60,000 10% of sales $                 4,32,000
Inventories $     7,20,000 20% of sales $                 8,64,000
Total current assets $   12,60,000 35% of sales $               15,12,000
Fixed assets $   14,40,000 40% of sales $               17,28,000
Total assets $   27,00,000 75% of sales $               32,40,000
Accounts payable $     3,60,000 10% of sales $                 4,32,000
Notes payable $     1,56,000 $                 1,56,000
Line of credit AFN $                 4,08,886
Accruals $     1,80,000 5% of sales $                 2,16,000
Total current liabilities $     6,96,000 $               12,12,886
Common stock $   18,00,000 $               18,00,000
Retained earnings $     2,04,000 $                 2,27,114
Total liabilities and equity $   27,00,000 $               32,40,000

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