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Forecast 2020 income statement and balance sheet using the percent of sales method and the following assumptions: (1) sales in 2020 will be 12.5 million; (2) tax rate keeps the same; (3) each item that changes with sales will be the 2 year average percentage of sales; (4) fixed asset will increase $1,000,000 with a 10 year straight line depreciation schedule with 0 salvage value; (5) the common stock dividends will be $202,000; (6) interest rate on short-term and long-term debt will be 9%; (7) Cash , short-term investment will be the same as 2019; (8) COGS, Selling G&A expenses, A/R, inventory, A/P, Accruals will change in proportion to sales; (9) Notes payable and long-term debt will keep the same; and if there is borrowing need, the company will borrow from long-term debt; (10) the company will not issue stocks in 2020.

a) What is the additional funds needed in 2020? Is this a surplus or deficit or balanced? (Without iteration, or borrowing happens at last day of the year)

b) Assume that the AFN will be absorbed by long-term debt, set up an iterative worksheet to find total accumulated AFN (borrowing happens during the year)

c) Why accumulated AFN increases in part b)? Please explain the phenomenon.

Rhodes Corporation: Income Statements for Year Ending December 31 2019 2018 Sales 11,000,000 10,000,000 COGS 9,322,000 8,448,000 Gross profit 1,678,000 1,552,000 Depreciation and amortization 380,000 360,000 Selling & Admin. Expenses 290,000 280,000 Earnings before interest and taxes 1,008,000 912,000 Interest expense 220,000 100,000 Earnings before taxes 788,000 812,000 Taxes 197,000 203,000 Net income 591,000 609,000 Rhodes Corporation: Balance Sheets as of December 31 2019 2018 Assets Cash 842,000 500,000 Short-term investments 110,000 100,000 Accounts receivable 2,750,000 2,50 Inventories 1,650,000 1,500,000 Total current assets 5,352,000 4,600,000 Gross plant and equipment 4,813,000 4,375,000 Accumulated Depreciation 1,255,000 875,000 Net plant and equipment 3,558,000 3,500,000 Total assets 8,910,000 8,100,000 Liabilities & Owner's Equity Accounts Payable Accruals Notes Payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity 1,100,000 550,000 384,000 2,034,000 1,100,000 3,134,000 4,312,000 1,464,000 5,776,000 8,910,000 1,000,000 500,000 200,000 1,700,000 1,000,000 2,700,000 4,400,000 1,000,000 5,400,000 8,100,000 Note: Tax rate 25% Rhodes Corporation: Income Statements for Year Ending December 31 2019 2018 Sales 11,000,000 10,000,000 COGS 9,322,000 8,448,000 Gross profit 1,678,000 1,552,000 Depreciation and amortization 380,000 360,000 Selling & Admin. Expenses 290,000 280,000 Earnings before interest and taxes 1,008,000 912,000 Interest expense 220,000 100,000 Earnings before taxes 788,000 812,000 Taxes 197,000 203,000 Net income 591,000 609,000 Rhodes Corporation: Balance Sheets as of December 31 2019 2018 Assets Cash 842,000 500,000 Short-term investments 110,000 100,000 Accounts receivable 2,750,000 2,50 Inventories 1,650,000 1,500,000 Total current assets 5,352,000 4,600,000 Gross plant and equipment 4,813,000 4,375,000 Accumulated Depreciation 1,255,000 875,000 Net plant and equipment 3,558,000 3,500,000 Total assets 8,910,000 8,100,000 Liabilities & Owner's Equity Accounts Payable Accruals Notes Payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity 1,100,000 550,000 384,000 2,034,000 1,100,000 3,134,000 4,312,000 1,464,000 5,776,000 8,910,000 1,000,000 500,000 200,000 1,700,000 1,000,000 2,700,000 4,400,000 1,000,000 5,400,000 8,100,000 Note: Tax rate 25%

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