In: Accounting
The most recent financial statements for Scott, Inc., appear below. Sales for 2020 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets and accounts payable increase spontaneously with sales. |
SCOTT, INC. 2019 Income Statement |
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Sales | $763,000 | |||||
Costs | 598,000 | |||||
Other expenses | 34,000 | |||||
Earnings before interest and taxes | $131,000 | |||||
Interest expense | 30,000 | |||||
Taxable income | $101,000 | |||||
Taxes (25%) | 25,250 | |||||
Net income | $75,750 | |||||
Dividends | $23,483 | |||||
Addition to retained earnings | 52,267 | |||||
SCOTT, INC. Balance Sheet as of December 31, 2019 |
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Assets | Liabilities and Owners’ Equity | ||||||
Current assets | Current liabilities | ||||||
Cash | $ | 22,240 | Accounts payable | $ | 56,400 | ||
Accounts receivable | 45,180 | Notes payable | 15,600 | ||||
Inventory | 107,960 | Total | $ | 72,000 | |||
Total | $ | 175,380 | Long-term debt | $ | 146,000 | ||
Fixed assets | Owners’ equity | ||||||
Net plant and equipment | $ | 439,000 | Common stock and paid-in surplus | $ | 122,500 | ||
Retained earnings | 273,880 | ||||||
Total | $ | 396,380 | |||||
Total assets | $ | 614,380 | Total liabilities and owners’ equity | $ | 614,380 | ||
In 2019, the firm operated at 80 percent of capacity. Construct the pro forma income statement and balance sheet for the company. Assume that the company cannot sell fixed assets. This implies that asset utilization may remain less than 100 percent next year as well. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
What is the EFN? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32. A negative answer should be indicated by a minus sign.) |
1] | Income Statement | |||
Sales = 763000*120% = | 915600 | |||
Costs = 598000*120% = | 717600 | |||
Other expenses = 34000*120% = | 40800 | |||
EBIT | 157200 | |||
Interest | 30000 | |||
Taxable income | 127200 | |||
Taxes [25%] | 31800 | |||
Net income | 95400 | |||
Dividends [31%] | 29574 | |||
Addition to retained earnings | 65826 | |||
Proforma Balance Sheet | ||||
Assets | Liabilities and Owners' Equity | |||
Current assets: | Current liabilities: | |||
Cash [22240*120%] | 26688 | Accounts payable [56400*120%] | 67680 | |
Accounts receivable [45180*120%] | 54216 | Notes payable | 15600 | |
Inventory [107960*120%] | 129552 | Total current liabilities | 83280 | |
Total | 210456 | Long term debt | 146000 | |
Fixed assets: | Owners' equity: | |||
Net plant and equipment | 439000 | Common stock and paid in surplus | 122500 | |
[The firm is working at 80% capacity; 20% | Retained earnings = 273880+65826 = | 339706 | ||
increase will make it only 96%. Hence, no increase in FA required] | Total | 462206 | ||
Total assets | 649456 | Total liabilities and owner's equity | 691486 | |
2] | EFN = 649456-691486 = | -42030 | ||
As the EFN is negative, it indicates surplus cash. |