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Question: It is January 1st, 2015. 2014 turned out very well for Oscar – his projections were quite close. ...

It is January 1^st, 2015. 2014 turned out very well for Oscar – his projections were quite close. He wants you to project out an Income Statement, Balance Sheet and a Cash Flow Statement for 2015 using the new assumptions outlined below. (40 points)

-2015 year sales will each be 25% higher than the $110,000 realized in 2014

-Gross margins in 2015 will be 55, 5% higher than the 50% realized in 2014

-Operating margins will be 22%, 2% higher than 20% realized in 2014

-Accounts Receivables will be 12% of sales, lower than the 15% seen in 2014

-Inventory will be 15% of sales, higher than the 12% seen in 2014

-Accounts Payable will be 4% of sales in 2015, lower than the 5% seen in 2014

-Accrued expenses payable will be 4% of sales in 2015, lower than the 7% seen in 2014

-The Bank of Connecticut will continue to be paid 8% interest on the $30,000 worth of loans.

-The combined federal and provincial tax rates will be 30%

-No new capital purchases are made

-Closing cash is expected to remain at the same level predicted for and seen in 2014

-Depreciation of existing capital equipment continues at the same rate observed in 2014 (it is 10%)

Income Statement
Sales	100,000
Less:COGS	50000	=100000*50%
Gross Profit	50000	=100000*50%
Less:Operating Expenses	30,000	balancing figure =50000-20000
Operating Profit	20,000	=100000*20%
Less: Interest	2,400	=30000*8%
Profit before tax	17,600
Less: Taxes@30%	5,280	=17600*30%
Profit after tax	12,320
Balance Sheet
Capital Equipment	35000		Equity Financing	28,680	=83000-5000-7000-30000-12320
Less:Accumulated depreciation	3500	=35000*10%
	31500		Retained Earning	12,320
Accounts Receiavable	15,000	=100000*15%	Accounts Payable	5,000	=100000*5%
Inventory	12,000	=100000*12%	Accrued Expenses Payable	7,000	=100000*7%
Cash	24500		Bank Loan	30000
Total	83000			54320

Answer 1

Projected Income Statement
For 2015
Sales	$137,500
Cost of goods sold	$61,875	(137500*45%)
Gross Profit	$75,625	(137500*55%)
Operating Expenses	$45,375	Balancing figure (75625-30250)
Operating Profit	$30,250	(137500 x 22%)
Interest	$2,400
Profit before tax	$27,850
Tax @ 30%	$8,355	(27850 x 30%)
Net Profit	$19,495
Projected Balance Sheet
as of December 31, 2015
Capital Equipment	$35,000	Equity Financing	$15,410
Less: Accumulated depreciation	$7,000	Retained Earnings	$33,215
	$28,000		$48,625
Accounts Receivable	$16,500	Accounts payable	$5,500
Inventory	$20,625	Accrued expenses payable	$5,500
Cash	$24,500	Bank loan	$30,000
Total	$89,625		$89,625
It is assumed that Oscar withdrawn an amount of $16670 from equity financing
Cash Flow Projection
Net income	$19,495
Add: Depreciation	$3,500
Increase in Inventory	($4,125)
Decrease in accrued expenses payable	($2,200)
Cash flow from operating activites	$16,670
Cash from financing activities
Cash withdrawn from business	($16,670)
Net cash flow for the period	$0
Beginning Cash balance	$24,500
Ending Cash Balance	$24,500

Income statement for 2014
Sales	110000
Cost of goods sold	55000
Gross Profit	55000
Operating Expenses	33000
Operating Profit	22000
Interest	2400
Profit before tax	19600
Tax @ 30%	5880
Net Profit	13720
Balance sheet as of 2014
Capital Equipment	35000	Equity Financing	32080
Less: Accumulated depreciation	3500	Retained Earnings	13720
	31500		45800
Accounts Receivable	16500	Accounts payable	5500
Inventory	16500	Accrued expenses payable	7700
Cash	24500	Bank loan	30000
Total	89000		89000

Retained Earnings = $13720 + $19495 = $33215