At year-end 2016, Wallace Landscaping’s total assets were $2.0 million, and its accounts payable were $345,000....

At year-end 2016, Wallace Landscaping’s total assets were $2.0 million, and its accounts payable were $345,000. Sales, which in 2016 were $2.2 million, are expected to increase by 20% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $375,000 in 2016, and retained earnings were $240,000. Wallace has arranged to sell $70,000 of new common stock in 2017 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 8%, and 45% of earnings will be paid out as dividends.

a) What was Wallace's total long-term debt in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.

b) What were Wallace's total liabilities in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.

c) How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar.

Expert Solution

Sales, Account payables and total assets will grow by 20% in 2017 as they are directly proportional

Sales in 2017		120%X2200000
		2640000
Total assets in 2017		120%X2000000
		2400000
Account payales in 2017		120%X345000
		414000
Net profit in 2017		8%Xsales
		8%*2640000
		211200
Dividend in 2017		45%Xnet profit
		95040
Total Assets=Total liabilities + equity
total assets=account payables+common stock+retained earnings+debt
2000000=345000+375000+240000+debt
Debt in 2016	=	1040000

Similarly, debt in 2017	=	1324840


		Year 2016	Year 2017		Year 2016	Year 2017

Total assets		2000000	2400000	sales	2200000	2640000
				Net profit	176000	211200
				Dividend	79200	95040
Account payables		345000	414000

Common stock		375000	305000
Retained earnings		240000	356160

Total Liabilities		2000000	2400000

Debt		1040000	1324840

jeff jeffy answered 2 years ago

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At year-end 2016, Wallace Landscaping’s total assets were $2.0 million, and its accounts payable were $345,000....

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