Question

The 2018 Balance Sheet for ABC Corporation is shown below:

Assets                                                  Liabilities

Cash                                $10,000        Accounts Payable                              $ 8,000

Accounts Receivable        20,000        Accruals                                                2,000

Inventory                          40,000            Total Current Liabilities                $10,000

   Total Current Assets   $70,000         Bonds                                                $30,000

Net Fixed Assets          $150,000            Total Liabilities                              $40,000

                                                             Owners Equity

                                                             Common Stock                                $100,000

                                                             Retained Earnings                                80,000

   Total Assets               $220,000          Total Liabilities & Owners Equity $220,000

   The firm is currently operating at 100% capacity with sales of $100,000. Management believes that next year sales will increase by 17% and is anticipating that the firm’s profit margin will remain at 15%. The dividend payout for next year will be 60%. In the year 2019 what will the firms additional funds needed be? (In answering this question you must prepare a pro forma balance sheet.) (40 points)

Answer 1

Proforma Balance Sheet for 2019
Assets	Liabilities and Owners' Equity
Current assets:		Current liabilities:
Cash [10000*117%)	$          11,700	Accounts payable [8000*117%]	$           9,360
Accounts receivable [20000*117%]	$          23,400	Accruals [2000*117%]	$           2,340
Inventory [40000*117%]	$          46,800	Total	$         11,700
Total	$          81,900	Bonds	$         30,000
		Total liabilities	$         41,700
Fixed assets:		Owners' equity:
Net plant and equipment (150000*117%)	$       1,75,500	Common stock	$ 1,00,000
		Retained earnings [80000+7020]=	$         87,020
		Total owners' equity	$ 1,87,020
Total assets	$       2,57,400	Total liabilities and owner's equity	$ 2,28,720
		AFN = 257400-228720 =	$         28,680
WORKINGS FOR ADDITION TO RETAINED EARNINGS:
Profit anticipated for 2019 [100000*117%*15%]	$          17,550
Dividends at 60% = 17550*60% =	$          10,530
Addition to RE during 2019 =	$ 7,020