Question

The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

Income Statement
Sales	$	300,000
Expenses		246,800
Earnings before interest and taxes	$	53,200
Interest		9,100
Earnings before taxes	$	44,100
Taxes		17,100
Earnings after taxes	$	27,000
Dividends	$	5,400

Balance Sheet
Assets			Liabilities and Stockholders' Equity
Cash	$	9,000	Accounts payable	$	29,000
Accounts receivable		56,000	Accrued wages		2,250
Inventory		70,000	Accrued taxes		4,750
Current assets	$	135,000	Current liabilities	$	36,000
Fixed assets		86,000	Notes payable		9,100
			Long-term debt		25,500
			Common stock		125,000
			Retained earnings		25,400
Total assets	$	221,000	Total liabilities and stockholders' equity	$	221,000

  

Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.)
  

Answer 1

Balance sheet
Particulers			Last Year	40% Sale Increase
Assets
Cash				9000	12600
Account receivable			56000	78400
Inventory			70000	98000
Total current Assets			135000	189000
Long Term Assets
Fixed assets		86000
Depreciation		0	86000	86000
	Total			221000	275000
Liability
Current Liabilties
Account payable			29000	40600
Accrued wages			2250	3150
Accrued Income Tax			4750	0
				36000	43750
Long term liabilities
Long term Debts			25500	25500
Notes Payables			9100	9100
Owner's Fund
Retaind earnings			125000	165790
Share Capital			25400	25400
	Total			221000	269540
Income Statement
Sales				300000	420000
Expenses				246800	345520
Gross Profit			53200	74480
Operating Expenses
Salling & administrative expenses	0	0
Total Oprating Expenses		53200	74480
Interest Expenses			9100	9100
Income before tex			44100	65380
Income tax expenses		17100	23940
Net Income after tex		27000	41440
Dividend				5400	5400
				21600	36040
When we apply persentage of salesmethod the figar will increase
by Basic (1+% of Increase/100) then
Total Assets as per new balance sheet		269540
Total Liability as per new balance sheet		275000
					-5460
External Finance Needs will be $ 5460