Question

Use the following information and the percent-of-sales method to answer the following question(s) Below is the 2017 year-end balance sheet for Smith, Inc. Sales for 2017 were $1,600,000 and are expected to be $2,000,000 during 2018. In addition, we know that Smith plans to pay $90,000 in 2018 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)

Answer 1

	INCOME STATEMENT
		2017	Basis for forecast	Forecast 2018
	Sales	$         16,00,000		$    20,00,000
	NI at 4%			$          80,000
	Dividends [36.42%]			$          90,000
	Addition to retained earnings			$         -10,000
	BALANCE SHEET
		2017	Basis for forecast	Forecast 2010 [Before EFN]
	Assets
	Current assets	$            8,90,000	55.63% of sales	$    11,12,600
	Net fixed assets	$         10,00,000	62.50% of sales	$    10,00,000
	Total assets	$         18,90,000	118.13% of sales	$    21,16,800
	Total liabilities & Equity
	Current liabilities:
	A/P	$            1,60,000	10.00% of sales	$       2,00,000
	Accrued expenses	$            1,00,000	6.25% of sales	$       1,00,000
	N/P	$            7,00,000		$       7,00,000
	Total current liabilities	$            9,60,000		$    10,75,200
	Long term debt	$            3,00,000		$       3,00,000
	Total liabilities	$         12,60,000		$    13,75,200
	Stockholders' equity:
	Common stock [plus paid in capital]	$            3,60,000		$       3,60,000
	Retained earnings	$            2,70,000	-$10,000	$       2,60,000
	Common equity	$            6,30,000		$       6,20,000
	Total liabilities & stockholders' equity	$         18,90,000		$    19,95,200
	EFN			$       1,21,600
	ANSWERS;
5]	Projected long term debt			$       3,00,000
6]	Projected retained earnings			$       2,60,000
7]	Projected DFN			$       1,21,600