Problem 12-8 Financing Deficit Stevens Textile\'s 2013 financial statements are

Question

Problem 12-8
Financing Deficit

Stevens Textile's 2013 financial statements are shown below:

Balance Sheet as of December 31, 2013 (Thousands of Dollars)

Income Statement for December 31, 2013 (Thousands of Dollars)

Suppose 2014 sales are projected to increase by 10% over 2013 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2014. The interest rate on all debt is 9%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2013, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest dollar. Do not round intermediate calculations.

What is the resulting total forecasted amount of the line of credit? Round your answer to the nearest dollar. Do not round intermediate calculations.
Notes payable     $ (and need this one)

Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0    Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600    Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860    Total assets $29,160    Total liabilities and equity $29,160

Explanation / Answer

Proforma Income Statement for 2014:

Additional Finance Needed = Increase in total assets - Increase in spontaneous liabilities - increase in retained earnings = $ 2,916 - 10% ( $ 4,320 + $ 2,880) - $ 1,126 = $ 1,070

$ Sales 39,600 Operating costs 35,684 Earnings before interest and taxes 3,916 Interest 504 Pretax earnings 3,412 Tax @ 40% 1,365 Net income 2,047 Dividends (45%) 921 Addition to retained earnings 1,126

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---