Question

At year-end 2016, Wallace Landscaping’s total assets were $1.5 million and its accounts payable were $395,000. Sales, which in 2016 were $2.0 million, are expected to increase by 30% 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 $420,000 in 2016, and retained earnings were $260,000. Wallace has arranged to sell $160,000 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 profit margin on sales is 6%, and 35% of earnings will be paid out as dividends.

What was Wallace's total long-term debt in 2016? Round your answer to the nearest dollar.
$  
What were Wallace's total liabilities in 2016? Round your answer to the nearest dollar.
$  

How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Round your answer to the nearest dollar.

Answer 1

		2016	2017
	Total assets	$1,500,000.00
	Accounts payable	$395,000
	Common stock	420000
	Retained Earnings	260000
	Sales	2000000	2600000
	Assets/Sales	75%
	Accounts payable/sales	19.75%
	Total Liabilities + Equity = 1500000
	Common Stock + Retained earnings + Accounts payable + Long Term liabilities = 1500000
	420000+260000+395000+Long Term liabilities = 1500000
	Long Term Liabilities = $1075000
	Total Liabilities	395000+1075000
	Total Liabilities	1470000	$1,470,000
	Sales(2*130%)	2600000
	Profit Margin	208000
	Dividend	72800
	Trf to retained earnings	135200
	Total Assets(2600000*75%)	1950000
	Accounts Payable(2600000*19.75%)	513500
	Common Stock	580000	0
	Retained Earnings	530200
	Long Term Liabilities	326300
		1950000