Question

Consider the Industrial Supply Company example again. Assume that the company plans to maintain its dividend payment at the same level in 2014 as in 2013. Also assume that all of the additional financing needed is in the short-term notes payable. Work the pro forma analysis for 2014 under each of the following conditions.

Answer the ??

		case a	case b
change in Sales	ΔS	3,750.00	3,000.00
change in expense	ΔEXP	3,750.00	2,800.00

In Case b, what is the change in asset?

In Case b, what is the change in liabilities without additional financing (AFN)?

In Case b, what is the additional financing needed (AFN)?

Industrial Supply Company example (Table 4.4) Examples with Additional fund needed Scenarios anlaysis case a 3,750.00 3,750.00 case b 3,000.00 2,800.00 change in Sales change in expense Current (from current number Asset Sales Dividend Expense Current liability (only AP is included Notes Payable (NPo AS AEXP 7,500.00 15,000.00 250.00 14,250.00 1,500.00 1,000.00 4,500.00 7,500.00<- from current balancheet 15,000.00 <-- from current income statement 250.00 14,250.00 current 1,500.00 - only account 1,000.00 <- current 4,500.00 < -current EXPo le A/P is included NP - current Forecast for next year Sales Expense net income growth rate of sales Dividend (no change) case b 18,000.00 <- current +forecasted change 17,050.00<-- current+ forecasted change case a 18,750.00 18,000.00 750.00 0.25 250.00 EXP EAT AS/So 950.00 0.20 250.00 <--= sales-expense = S1 . EXP! <--growth rate of sales, change in sales / current sales <- no change, same as current, D1 D0 Change from last to next year Change in Assets Change in Current liabilities Addition to Retained Earnings Additional fund needed ACL RE AFN 1,875.00 375.00 500.00 1,000.00 ,500.00 AA-(Ao/So) (AS) 300.00 ACL (CLo/So)(AS) 700.00 ΔRE: [EAT. D1] 500.00 AFNAA ACL ARE ex Notes payable Equit ear NP1 2,000.00 5,000.00 1,500.00current+AFN1-NP1-NPO AFN1 5,200.00current ARE-E1 EO ARE

Answer 1

Solution :-

(a). Answers of ??

6 Stockholder's Equity Beginning Equity Addition to Retained Earnings Stockholder's Equity = 4,500.00 + 700.00 Stockholder's Equity = 5,200.00 7 Total Liabilities & Equities Total Assets Total Liabilities & Equities - 9,000 8 Change in Total Assets Closing of Total Assets - Beginning of Total Asset:s Change in Total Assets 9,000.00-7,500.00 Change in Total Assets 1,500.00 9 Change in Equity Closing of Equity - Beginning of Equity Change in Equity 5,200.00- 4,500.00 Change in Equity 700.00
(b). Change in Assets in case b -

Change in Total Assets = Closing of Total Assets - Beginning of Total Assets

Change in Total Assets = 9,000.00 - 7,500.00

Change in Total Assets = 1,500.00

(C). Change in Liabilities without additional financing (AFN) in case b -

Change in Liabilities (without additional financing) = {Closing Account Payable + Notes Payable (without additional financing)                                                                                                    + Long Term Debt} - {Closing Account Payable + Notes Payable (without                                                                                                    additional financing) + Long Term Debt}

Change in Liabilities (without additional financing) = (1,800.00 + 1,000.00 + 500.00) - (1,500.00 + 1,000.00 + 500)

Change in Liabilities (without additional financing) = 300.00

(d). Additional financing needed (AFN) in case b -

Additional Financing (AFN) = Change in Total Assets - Change in Liabilities - Addition to Retained Earnings

Additional Financing (AFN) = 1,500.00 - 300.00 - 700.00

Additional Financing (AFN) = 500.00