Question

help this is due in 15

Use the table for the question(s) below Pro Forma Income Statement for Ewing, Inc., 2005-2010 based on the firm's estimation in year 2004 is as below Year 2005 2006 2007 2008 2009 2010 Income Statement (S 000) 1 Sales 2 Cost of Goods Sold 75,000 88,358 103,234 119,777 138,149 158,526 Raw Materials 4 Direct Labor Costs 5 Gross Profit 6 Sales and Marketin 7 Administrative 8 EBITDA 9 Depreciation 10 EBIT 11 Interest Ex 12 Pre-tax Income 18,665) (21593 (24,808) (28,333) (32,193 18, 21,622) (25,757) (30471) (35,834) 41,925) 1,000 48,07 55,883 64498 73,982 84,407 (18,582) (23,356) (27,630) (31,705 7,959) (20,608) 16,250 20,238 21,816 24,373 28,393 32,094 13, 3,254) (15,485) (16, (5405) (6865) 0,750 14,788 16,411 7.508 20,715 24,383 8160 0,675 7988 9611 10,08 12,895 16,223 75 6800 820 13 Income Tax1 14 Net Income 5678) 69395193 6247 6960 8382 10,545 3736 364 48 With the proper changes it is believed that Ewing's credit policies will allow for an account receivables days of 60 (i.e. DSO 60). The forecasted accounts receivable for Ewing in 2007 is closest to: O $22,710 O $19,690o O $%16,970 O $14,525 O $88,358

Answer 1

1. Ewing forecasted accounts receivables in 2007

Days sales outstanding (DSO) is the number of days to receive cash for credit sales.

DSO = Accounts Receivable/Total Credit Sales * 365

Therefore,

Accounts Receivable = (DSO * Total Credit Sales)/365

In above case,

DSO = 60

Total Credit sales for 2007 = 103,234

Thus,

Account receivable for 2007 = (103,234*60)/365

= 16,970

2. Change in Net Income If Ewing reduce DSO to 50 in 2009.

Answer = $ 0

There are two types of accounting method to record accounting transactions -

1. Cash Method
2. Accrual Method

In Cash Method, transactions are recorded when actually cash received or paid, such as revenue recorded when cash received from customer and expenditure recorded when cash paid to supplier or employee.

In Accrual Method, transactions are recorded when they accrued which means income recorded when it earned and expenses recorded when it incurred regardless of actual cash movement.

Accrual Method is widely used by organized organization and also required by Law and Generally accepted accounting principles (GAAP). It is assumed that Ewing in given case also follows Accrual Method and therefore, Change in DSO does not affect the Net Income of Ewing in 2009.