Question

30 eBook Financing Deficit Stevens Textile Corporation's 2018 financial statements are shown below: Balance Sheet as of December 31, 2018 (Thousands of Dollars) Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600 Total current liabilities $9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12.860 Total assets Total liabilities and equity $29.160 Income Statement for January 1 - December 31, 2018 (Thousands of Dollars) Sales $36,000 Operating costs 32,440 Earnings before interest and taxes $ 3,560 Interest 460 Pre-tax earnings $ 3,100 Taxes (40%) Net income $1,860 Dividends (45%) Addition to retained earnings 1,023 a. Suppose 2019 sales are projected to increase by 25% over 2018 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2019. The interest rate on all debt is 12%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2018, that it cannot sell off any of its fixed assets, and that any required financing we be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Do not round intermediate calculations. Round your answers to the nearest dollar. Total assets: $ AFN: $ 1.240

Answer 1

		2018	Projected 2019
	Sales	$36,000	$45,000	(36000*1.25)
	Operating Costs	$32,440	$40,550	(32440*1.25)
	EBIT(Earning Before Interest and Taxes	$3,560	$4,450
	Less:Interest	$460	$672	(2100+3500)*12%
	Pretax Earning	$3,100	$3,778
	Taxes(40%)	$1,240	$1,511
	Net Income	$1,860	$2,267
	Less:Dividends(45%)	$837	$1,020
	Addition to retained Earnings	$1,023	$1,247
		A			C
	Item	2018			Projected Level 2019
	Cash	$1,080		Cash	$1,350	(1080*1.25)
	Accounts Receivables	$6,480		Accounts Receivables	$8,100	(6480*1.25)
	Inventory	$9,000		Inventory	$11,250	(9000*1.25)
	Total Current asset	$16,560		Total Current asset	$20,700
	Net Fixed asset	$12,600		Net Fixed asset	$15,750	(16560*1.25)
	Total Assets	$29,160		Total Assets	$36,450
	Accounts Payable	$4,320		Accounts Payable	$5,400	(4320*1.25)
	Accruals	$2,880		Accruals	$3,600	(2880*1.25)
	Line of Credit	$0		Line of Credit	$4,243
	Notes Payable	$2,100		Notes Payable	$2,100
	Total current liabilities	$9,300		Total current liabilities	$15,343
	Mortgage Bonds	$3,500		Mortgage Bonds	$3,500
	Common Stock	$3,500		Common Stock	$3,500
	Retained earnings	$12,860		Retained earnings	$14,107	(12860+1247)
	Total Liabilities and Equity	$29,160		Total Liabilities and Equity	$36,450
				Total Assets	$36,450
				Additional Fund Needed(AFN)	$4,243
				Increase in Total asset	$7,290	(36450-29160)
				Increase in Current Liabilities	$1,800	(5400+3600-4320-2880)
				Increase in fund requirement	$5,490
				Amount available from Retained Earnings	$1,247
				Additional Fund Needed	$4,243
			b	Forecasted Line of Credit	$4,243