Question

Garlington Technologies Inc.'s 2018 financial statements are shown below:

Balance Sheet as of December 31, 2018

Cash	$   180,000		Accounts payable	$   360,000
Receivables	360,000		Notes payable	156,000
Inventories	720,000		Line of credit	0
Total current assets	$1,260,000		Accruals	180,000
Fixed assets	1,440,000		Total current liabilities	$   696,000
			Common stock	1,800,000
			Retained earnings	204,000
Total assets	$2,700,000		Total liabilities and equity	$2,700,000

Income Statement for December 31, 2018

Sales	$3,600,000
Operating costs	3,279,720
EBIT	$  320,280
Interest	18,280
Pre-tax earnings	$  302,000
Taxes (40%)	120,800
Net income	181,200
Dividends	$  108,000

Suppose that in 2019 sales increase by 10% over 2018 sales and that 2019 dividends will increase to $158,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2018. Use an interest rate of 8%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. 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, 2019
Sales		$
Operating costs		$
EBIT		$
Interest		$
Pre-tax earnings		$
Taxes (40%)		$
Net income		$
Dividends:		$
Addition to RE:		$

Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2019
Cash		$
Receivables		$
Inventories		$
Total current assets		$
Fixed assets		$
Total assets		$
Accounts payable		$
Notes payable		$
Accruals		$
Total current liabilities		$
Common stock		$
Retained earnings		$
Total liabilities and equity		$

Answer 1

Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2019
	2018	Basis for projections	Proforma           2019
Sales	3600000	+10%	3960000
Operating costs	3279720	91.10% of sales	3607692
EBIT	320280		352308
Interest	18280	156000*8%	12480
Pre-tax earnings	302000		339828
Taxes (40%)	120800		135931
Net income	181200		203897
Dividends:	108000		158000
Addition to RE:	73200		45897
Pro Forma Balance Statement
December 31, 2019
	2018		2019
Cash	180000	5.00% of sales	198000
Receivables	360000	10.00% of sales	396000
Inventories	720000	20.00% of sales	792000
Total current assets	1260000		1386000
Fixed assets	1440000	40.00% of sales	1584000
Total assets	2700000		2970000
Accounts payable	360000	10.00% of sales	396000
Notes payable	156000		156000
Line of credit	0		170103
Accruals	180000	5.00% of sales	198000
Total current liabilities	696000		920103
Common stock	1800000		1800000
Retained earnings	204000	+ 45897	249897
Total liabilities and equity	2700000		2970000