Question

Assume ABC Company has asked you to not only prepare their 2017 year-end Balance Sheet but to also provide pro-forma financial statements for 2018. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:

End of the year information:

Account	12/31/17 Ending Balance
Cash	50,000
Accounts Receivable	175,000
Inventory	126,000
Equipment	480,000
Accumulated Depreciation	90,000
Accounts Payable	156,000
Short-term Notes Payable	12,000
Long-term Notes Payable	200,000
Common Stock	235,000
Retained Earnings	solve

Additional Information:

• Sales for December total 10,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product’s selling price is $25 per unit.
• Company policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The December 31 2017 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
• Sales representatives’ commissions are 12.5% of sales and are paid in the month of the sales. The sales manager’s monthly salary will be $3,500 in January and $4,000 per month thereafter.
• Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
• The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).
• All merchandise purchases are on credit, and no payables arise from any other transactions. One month’s purchases are fully paid in the next month.

• The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
• Dividends of $100,000 are to be declared and paid in February.
• No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.
• Equipment purchases of $55,000 are scheduled for March.

ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.

	Project 1	Project 2	Project 3
Purchase Price	$80,000	$175,000	$22,700
Required Rate of Return	6%	8%	12%
Time Period	3 years	5 years	2 years
Cash Flows – Year 1	$48,000	$85,000	$13,000
Cash Flows – Year 2	$36,000	$74,000	$13,000
Cash Flows – Year 3	$22,000	$38,000	N/A
Cash Flows – Year 4	N/A	$26,800	N/A
Cash Flows – Year 5	N/A	$19,000	N/A

How to prepare the year-end balance sheet for 2017 using proper headings?

Answer 1

As you had specifically asked for the year-end Balance sheet of 2017, I am providing only 2017 Balance sheet.

Balance sheet as at 31st December 2017

Assets	Amount	Liabilities & Capital	Amount
Current Assets		Current Liabilities
Cash	50,000	Accounts Payable	1,56,000
Accounts Receivable	1,75,000	Short Term Notes payable	12,000
Inventory	1,26,000	Total Current Liabilities	1,68,000
Total Current Assets	3,51,000	Non-Current Liabilities
Non Current Assets		Long term Notes payable	2,00,000
Equipment	4,80,000	Total Non-Current Liabilities	2,00,000
Accumulated Depreciation	-90,000	Shareholders's Equity
Total Non-Current Assets	3,90,000	Common Stock	2,35,000
		Retained earnings	1,38,000
		Total Shareholders Equity	3,73,000
Total Assets	7,41,000		7,41,000

Retained earnings has been taken as a balancing figure as no other information pertaining to Year 2017 is given in the question