Problem 12-09
Financing Deficit Garlington Technologies Inc.'s 2016 financial statements areshown below: Balance Sheet as of December 31, 2016 | Cash | $Â Â Â 180,000 | | Accounts payable | $Â Â Â 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 | $Â Â Â 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, 2016 | Sales | $3,600,000 | | Operating costs | 3,279,720 | | EBIT | $Â Â 320,280 | | Interest | 18,280 | | Pre-tax earnings | $Â Â 302,000 | | Taxes (40%) | 120,800 | | Net income | 181,200 | | Dividends | $Â Â 108,000 |
Suppose that in 2017 sales increase by 15% over 2016 sales andthat 2017 dividends will increase to $162,000. Forecast thefinancial statements using the forecasted financial statementmethod. Assume the firm operated at full capacity in 2016. Use aninterest rate of 13%, and assume that any new debt will be added atthe end of the year (so forecast the interest expense based on thedebt balance at the beginning of the year). Cash does not earn anyinterest income. Assume that the all new-debt will be in the formof a line of credit. Round your answers to the nearest dollar. Donot round intermediate calculations. Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2017 | | 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, 2017 | | 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 | | $ |
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