Question

The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales.

CROSBY, INC. 2017 Income Statement
Sales				$	750,000
Costs					585,000
Other expenses					21,000
Earnings before interest and taxes				$	144,000
Interest paid					17,000
Taxable income				$	127,000
Taxes (22%)					27,940
Net income				$	99,060
Dividends	$	29,718
Addition to retained earnings		69,342

CROSBY, INC. Balance Sheet as of December 31, 2017
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	20,940		Accounts payable	$	55,100
Accounts receivable		43,880		Notes payable		14,300
Inventory		94,960		Total	$	69,400
Total	$	159,780		Long-term debt	$	133,000
Fixed assets				Owners’ equity
Net plant and equipment	$	426,000		Common stock and paid-in surplus	$	116,000
				Retained earnings		267,380
				Total	$	383,380
Total assets	$	585,780		Total liabilities and owners’ equity	$	585,780

In 2017, the firm operated at 75 percent of capacity. Construct the pro forma income statement and balance sheet for the company. Assume that fixed assets are sold so that the company has a 100 percent asset utilization. (Do not round intermediate calculations.)

sales

cost

other expenses

EBIT

interest

taxable income

Taxes

Net income

What is the EFN? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

Answer 1

1 Costs and other expenses are increased by 20 percent as the sales are increased by 20%

2 Accounts receivable accounts payable and inventory are incresed to the extent of sales growth

3 Cash is the balancing figure means total liabilities and owners equity minus of accounts receivable and inventory

Subtract the company's projected working capital needs and capital expenditures from net income to determine the amount of external financing needed As such, external sources of finance could help to speed up your growth, acquire new equipment, purchase property, support uneven cash flow, release equity, fund marketing campaigns, replenish supplies, provide emergency relief and much more. External sources of finance are equity capital, preferred stock, debentures, term loans, venture capital, leasing, hire purchase, trade credit, bank overdraft, factoring etc. It is contrasted to internal financing which consists mainly of profits retained by the firm for investment. There are many kinds of external financing. The two main ones are equity issues, (IPOs or SEOs), but trade credit is also considered external financing as are accounts payable, and taxes owed to the government

External financing is money borrowed from the bank or investors. Here's a formula for how much they will need: External Financing Needed (EFN) = Increase in Assets - Increase in Liabilities - Retained Income.

Particulars Sales Costs Other Expenses Earnings before interest and taxes Interest Paid Total Income Taxes (22%) Net Income Dividend Addition to retained earnings CROSBY, INC. 2017 Income Statement 2018 Income Statement $7,50,000 $750000X120% $9,00,000 $5,85,000 $585000X120% $7,02,000 $21,000 $21000X120% $25,200 $1,44,000 $900000-$702000 $1,72,800 $17,000 $17,000 $1,27,000 $172800-$17000 $1,55,800 $27,940 $34,276 $99,060 $155800-$34276 $1,21,524 $29,718 $29,718) $69,342 $121524-$29718 $91,806

Amount in $ Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment CROSBY, INC. Balance Sheet as of December 31, 2017 Amount in $ Liabilities and Owners' Equity Current liabilities $20,940 Accounts payable $43,880 Notes payable $94,960 Total $1,59,780 Long-term debt Owners' equity $4,26,000 Common stock and paid-in surplus Retained earnings $5,85,780 Total liabilities and owners' equity $55,100 $14,300 $69,400 $1,33,000 $1,16,000 $2,67,380 $5,85,780 Total assets Workings Amount in $ $55100X120% CROSBY, INC. Balance Sheet as of December 31, 2018 Assets Workings Amount in $ Liabilities and Owners' Equity Current assets Current liabilities Cash $666142-$52656-$113952 $4,99,534 Accounts payable Accounts receivable $43880X120% $52,656 Notes payable Inventory $94960X120% $1,13,952 Total Total $6,66,142 Long-term debt Fixed assets Owners' equity Net plant and equipment Common stock and paid-in surplus Retained earnings Total assets $6,66,142 Total liabilities and owners' equity $66,120 $14,300 $80,420 $1,33,000 $267380+$91806 $1,16,000 $3,36,722 $6,66,142