Question

Garlington Technologies Inc.'s 2019 financial statements are shown below: Income Statement for December 31, 2019 Sales $4,000,000 Operating costs 3,200,000 EBIT $  800,000 Interest 120,000 Pre-tax earnings $  680,000 Taxes (25%) 170,000 Net income 510,000 Dividends $  190,000 Balance Sheet as of December 31, 2019 Cash $   160,000 Accounts payable $   360,000 Receivables 360,000 Line of credit 0 Inventories 720,000 Accruals 200,000 Total CA $1,240,000 Total CL $   560,000 Fixed assets 4,000,000 Long-term bonds 1,000,000 Total Assets $5,240,000 Common stock 1,100,000 RE 2,580,000 Total L&E $5,240,000 Suppose that in 2020 sales increase to $4.2 million and that 2020 dividends will increase to $234,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 10%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2020 Sales $   Operating costs $   EBIT $   Interest $   Pre-tax earnings $   Taxes (25%) $   Net income $   Dividends: $   Addition to RE: $   Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2020 Cash $   Receivables $   Inventories $   Total current assets $   Fixed assets $   Total assets $   Accounts payable $   Line of credit $   Accruals $   Total current liabilities $   LT bonds $   Common stock $   Retained earnings $   Total L&E $

Answer 1

Garlington Technologies Inc.

Pro Forma Income statement

Dec 31st, 2020

Particulars	Amount$
Sales	4,200,000
Less: Operating Cost	3,200,000
Earning Before Interest And Tax(EBIT)	1,000,000
Less: Interest($1000,000× 10%)	100,000
Earning Before Tax(EBT)	900,000
Less: Tax($900,000× 25%)	225,000
Net Income	675,000
Less: Dividend	234,000
Addition to Retained Earnings	441,000

Garlington Technologies inc.

Pro forma of Balance sheet

December 31st 2020

Assets	Amount$
Cash ( refer note :1)	601,000
Receivable	360,000
Inventories	720,000
Total Current Assets	1,681,000
Fixed Assets	4,000,000
Total Assets	5,681,000
Liabilities
Account Payable	360,000
Line of credit	0
Accrual	200,000
Total Current Liabilities	560,000
Long term borrowing	1000,000
Common stock	1,100,000
Retained Earnings (refer note:2)	3,021,000
Total liabilities and equity	5,681,000

Note:

1) cash

Particulars	Amount $
Opening cash balance	160,000
Sales in 2020	4,200,000
Less: Operating cost	(3,200,000)
Interest	(100,000)
Tax paid	(225,000)
Dividend	(234,000)
Closing Cash balance	601,000

2: Retained Earnings

Opening Retained Earnings bal.	$2,580,000
Addition to Retained Earnings in 2020	$441,000
Closing retained earning	$5,681,000