Question

2018 Income Statement
Net sales	$	18,400
Cost of goods sold		15,200
Depreciation		700
Earnings before I and T	$	2,500
Interest paid		70
Taxable Income	$	2,430
Taxes		960
Net income	$	1,470
Dividends	$	390

Inhale, Inc. 2018 Balance Sheet
	2018				2018
Cash	$	7,600		Accounts payable	$	6,840
Accounts rec.		2,200		Long-term debt		700
Inventory		8,200		Common stock	$	8,400
Total	$	18,000		Ret. Earnings		11,660
Net fixed assets		9,600
Total assets	$	27,600		Total liabilities & equity	$	27,600

Inhale, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. In 2019, no new equity will be raised and sales are projected to increase by 10 percent. Construct the pro formas for 2019 (at first leave interest and long term debt unchanged). Then answer the following questions.

Projected total assets = $______

Hint: Divide each quantity on the left-hand side of the 2018 Balance Sheet by the 2018 Sales to compute the percentages of sales. New sales in 2019 will be 10% higher than in 2018, so compute sales for 2019. Apply the percentages you computed for 2018 to the new sales number for 2019 to construct each line item on the Balance Sheet for 2018. Read off the Total Assets at the bottom.

Projected 2013 Retained Earnings = $______

Hint. Proceed by constructing the Income Statement for 2019. Start with the new Sales (10% higher than 2012). Compute Cost of Goods Sold and Depreciation as percentages of sales in 2018 and apply the same percentages to 2019 Sales to get CoGS and Depr for 2019. When you get to taxes, things will be different. Compute the Taxes for 2018 as % of Taxable Income, not Sales, for 2018. Apply the same percentage to the 2019 Taxable Income to get Taxes for 2019. Similarly, compute Dividends for 2018 as % of 2018 Net Income, not Sales. Apply that percentage to the 2019 Net Income to get 2019 Dividends. The Addition to the Retained Earnings for 2019 is equal to the Net Income minus Dividends. Add the Addition to RE to the 2018 Retained Earnings from the 2018 Balance Sheet and you have the new 2019 Retained Earnings.

Additional new debt required = $______

Answer 1

hi, please find below the answer let me know if you need any clarification -

2018 Income Statement		As % of sales		year 2019	Working
Net sales	18,400	100.00%		20,240	18400*110%
Cost of goods sold	15,200	82.61%		16,720	20240*82.61%
Depreciation	700	3.80%		770	20240*3.8%
Earnings before I and T	2,500	13.59%		2,750
Interest paid	70	0.38%		77
Taxable Income	2,430	13.21%		2,673
Taxes	960	5.22%		1056	39.51% of Taxable income
Net income	1,470	7.99%		1,617
Dividends	390	2.12%		429
Amount trasferred to retained earning (note -1)				1,188
Tax rate	39.51%
Dividend pay out ratio	26.53%
Inhale, Inc.
2018 Balance Sheet
	2018	% of sales			2018	% of sales
Cash	7,600	41.30%		Accounts payable	6,840	37%
Accounts rec.	2,200	11.96%		Long-term debt	700
Inventory	8,200	44.57%		Common stock	8,400
Total	18,000	97.83%		Ret. Earnings	11,660
Net fixed assets	9,600	52.17%
Total assets	27,600	150.00%		Total liabilities & equity	27,600
Compuation of 2019 Projected total assets
Asset will remain as % of sales computed above in table for 2018
	2019	% of sales
Cash	8,360	41.30%
Accounts rec.	2,420	11.96%
Inventory	9,020	44.57%
Total	19,800	97.83%
Net fixed assets	10,560	52.17%
Total assets	30,360	150.00%
Hence, total asset =		30,360
Projected Retained Earnings
2018 balance		11,660
Addition to retained earning from income		1,188
(note -1)
Retained earning balance		12,848
Compuation of additional debt required
Total asset =		30,360
Less :
Accounts payable	6840
Long-term debt	700
Common stock	8400
Ret. Earnings	12,848
Total		28788
Additional debt required		1,572