Question

The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 30 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales. CROSBY, INC. 2017 Income Statement Sales Costs Other expenses $752,000 587,000 23,000 Earnings before interest and taxes Interest paid $ 142,000 19,000 Taxable income Taxes (24%) $ 123,000 29.520 Net Income $ 93,480 Dividends Addition to retained earnings $28,044 65,436

Answer 1

Pro Forma Income Statement Sales* Costs Other expenses* 977,600 763,100 29,900 EBIT 184,600 19,000 Interest Taxable income Taxes (24%) 165,600 39,744 Net income 125,856 Pro Forma Balance Sheet Assets Current assets Cash Accounts receivable* Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable 27,482 57,304 | 71,890 14,500 Inventory* 126,048 Total 86,390 210,834 135,000 Total Fixed assets Net plant and equipment*** Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings** 417,300 117,000 356,479 Total 473.479 Total assets 628,134 Total liabilities and owners' equity | 694,869 -66735 EFN= 628134-694869 *Increase by 30% 125,856 37,757 **calculation of Accumulated retained earnings Net income Less: Dividends=125856*28044/93480 Addition to retained earnings Add: Retained earnings as per balance sheet Projected Retained earning balance 88,099 268,380 356,479 sales possible by using 100% of fixed asset capacity =752000/0.75 full capacity ratio=fixed assets/full capacity sales=428000/1002667 | Total Fixed assets required for projected sales =977600*0.42686 1,002,667 | 0.42686 417,300