Question

Financing Deficit

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 15% 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 14%, 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