Question

Consider the following income statement for the Heir Jordan Corporation:

  

HEIR JORDAN CORPORATION Income Statement
Sales					$	43,800
Costs						34,800
Taxable income					$	9,000
Taxes (21%)						1,890
Net income					$	7,110
Dividends	$	2,518
Addition to retained earnings		4,592

  

The balance sheet for the Heir Jordan Corporation follows.

  

HEIR JORDAN CORPORATION Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	2,700		Accounts payable	$	2,400
Accounts receivable		3,500		Notes payable		5,400
Inventory		9,000		Total	$	7,800
Total	$	15,200		Long-term debt	$	24,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	19,000
Net plant and equipment	$	38,600		Retained earnings		3,000
				Total	$	22,000
Total assets	$	53,800		Total liabilities and owners’ equity	$	53,800

  

Prepare a pro forma balance sheet, assuming an increase in sales of 13 percent, no new external debt or equity financing, and a constant payout ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Calculate the EFN. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Answer 1

Answer is given below with working. Answers are kept to 2 decimal places as per the requirement

Working notes: Sales Costs Taxable income Taxes (21%) Net income $49,494.00 $39,324.00 $10,170.00 $2,135.70 $8,034.30 Dividends Addition to retained earnings $2,845.34 ($2,518/$7,110 * $8034.30) $5,188.96 Assets Current assets Cash Accounts receivable Inventory HEIR JORDAN CORPORATION Proforma Balance Sheet Liabilities and Owners' Equity Current liabilities $3,051.00 Accounts payable $3,955.00 Notes payable $10,170.00 Total $2,712.00 $5,400.00 $8,112.00 A ΑΙ Total $17,176.00 Long-term debt $24,000.00 B Fixed assets Net plant and equipment Owners' equity Common stock and paid-in surplus Retained earnings $19,000.00 $8,188.96 B $43,618.00 Total $60,794.00 Total liabilities and owners' equity $27,188.96C $59,300.96 A + B + C A+B Total assets Explanation: Current Assets, Current Liabilities and Accounts payable are increased by 13% in same proportion as increase in sales Retained earnings Opening balance $3,000.00 Net Income $5,188.96 Closing balance Retained earnings $8,188.96 b) External Funds needed $1,493.04|($60,794.00-$59,301.96)