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Financing Deficit

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 $244,000. 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 14%. 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 $ 4200000 Operating costs $ 3360000 EBIT $ 840000 Interest $ Pre-tax earnings $ Taxes (25%) $ Net income $ Dividends: $ 244000 Addition to RE: $

Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2020 Cash $ Receivables $ 378000 Inventories $ 756000 Total current assets $ 1294000 Fixed assets $ Total assets $ Accounts payable $ 378000 Line of credit $ Accruals $ Total current liabilities $ LT bonds $ 1000000 Common stock $ 1100000 Retained earnings $ 2876000 Total L&E $ 5554000

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