Question

Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION Income Statement
Sales					$	49,000
Cost						40,300
Taxable income					$	8,700
Taxes (22%)						1,914
Net income					$	6,786
Dividends	$	2,400
Addition to retained earnings		4,386

The balance sheet for the Heir Jordan Corporation follows.

HEIR JORDAN CORPORATION Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	2,950		Accounts payable	$	2,400
Accounts receivable		4,100		Notes payable		5,400
Inventory		6,400		Total	$	7,800
Total	$	13,450		Long-term debt	$	28,000
				Owners’ equity
Fixed assets				Common stock and paid-in surplus	$	15,000
Net plant and equipment	$	41,300		Retained earnings		3,950
				Total	$	18,950
Total assets	$	54,750		Total liabilities and owners’ equity	$	54,750

Prepare a pro forma balance sheet, assuming a sales increase of 15 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.)

Next Visit question map

Question3of6Total3 of 6

Prev

Answer 1

HEIR JORDAN CORPORATION PRO FORMA INCOME STATEMENT Sales $56,350.00 [$49000 x 115%] Costs $46,345.00 [$40300 x 115%] Taxable income $10,005.00 Taxes (at 22%) $2,201.10 ($10005 x 22%] Net income $7,803.90 Dividends $2,760.00 [$7803.9 x ($2400 / $6786) --> Constant payout ratio maintained] Addition to retained earnings $5,043.90

Assets Current assets: Cash Accounts receivable Inventories Total current assets HEIR JORDAN CORPORATION PRO FORMA BALANCE SHEET Liabilities and Owners' Equity Current liabilities: $3,392.50 [$2950 x 115%] Accounts payable $2,760.00 [$2400 x 115%] $4,715.00 [$4100 x 115%] Notes payable $5,400.00 [No change] $7,360.00 $6400 x 115%] Total current liabilities $8,160.00 $15,467.50 Long-term Liabilities: Long-term debt $28,000.00 [No change] Total Liabilities $36,160.00 $47,495.00 [$41300 x 115%] Stockholders' equity: Common stock $15,000.00 [No change] Retained earnings $8,993.90 [$3950 + $5043.9] Total SHs' Equity $23,993.90 $62,962.50 Total liab. & SHs' equity $60,153.90 Fixed assets: Net plant and equipment Total assets b) Total assets as per pro forma balance sheet $62,962.50 Total liab. & SHs' equity as per pro forma balance sheet $60,153.90 External financing required next year (EFN) $2,808.60 [Difference between $62962.50 and $60153.90]