Question

The most recent financial statements for Crosby, Inc., follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

CROSBY, INC. 2017 Income Statement Sales Costs Other expenses $ 767,000 623,000 31,000 Earnings before interest and taxes Interest paid $ 113,000 15,600 Taxable income Taxes (24%) $ 97,400 23,376 Net income $ 74,024 Dividends Addition to retained earnings $23,440 50,584 CROSBY, INC. Balance Sheet as of December 31, 2017 Assets Liabilities and Owners' Equity Current assets Current liabilities Cash $ 25,640 Accounts payable $ 63,000 Accounts receivable 35,100 Notes payable 18,800 Inventory 71,780 Total $ 81,800 Total $ 132,520 Long-term debt $ 115,000 Fixed assets Net plant and equipment Owners' equity Common stock and paid-in $110.000 surplus Retained earnings 49,720 $224,000 Total $ 159,720 Total assets $356,520 Total liabilities and owners' equity $356,520

Answer 1

Pro Forma Income Statement
	20% Sales Growth	25% Sales Growth	30% Sales Growth
Sales	920400	958750	997100
Costs	747600	778750	809900
Other Expenses	37200	38750	40300
EBIT	135600	141250	146900
Interest paid	15600	15600	15600
Taxable Income	120000	125650	131300
Taxes	28800	30156	31512
Net Income	91200	95494	99788
Dividend	28878.85	30238.56	31598.28
Add to RE	62321.15	65255.44	68189.72

Pro Forma Balance Sheet
	20% Sales Growth	25% Sales Growth	30% Sales Growth
Assets
Current Assets
Cash	30768	32050	33332
Accounts Receivable	42120	43875	45630
Inventory	86136	89725	93314
Total	159024	165650	172276
Fixed Assets
Net Plant & Equipment	268800	280000	291200
Total Assets	427824	445650	463476
Current Liabilities
Accounts Payables	75600	78750	81900
Notes Payable	18800	18800	18800
Total	94400	97550	100700
Long Term Debt	115000	115000	115000
Owners' Equity
Common Stock and paid	110000	110000	110000
in Surplus
Retained Earnings	61457.1499	64391.44	67325.72
Total	171457.1499	174391.4374	177325.7248
Total Liabilities and	380857.1499	386941.4374	393025.7248
Owners' Equity
EFN	46966.85	58708.56	70450.28

Workings
Given Tax Rate	24%
Dividend Paid	23440
Net Income	74024
Dividend Payout Rate	31.67%
Actual sales	767000
	December 31, 2017	% to Sales
Assets
Current Assets
Cash	25640	3.34%
Accounts Receivable	35100	4.58%
Inventory	71780	9.36%
Fixed Assets
Net Plant & Equipment	224000	29.20%
Accounts Payable	63000	8.21%
Retained Earnings as at	49720
March 31, 2017
Retained Earnings	50584
during the year
Retained Earnings at the	-864
begining of the year