Question

P 18-5 (similar to) Question Help Jim's Espresso expects sales to grow by 9.5% next year. Assume that Jim's pays out 80.3% of its net income. Use the following statements and the percent of sales method to forecast: a. Stockholders' equity b. Accounts payable The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices during your career. a. Stockholders' equity The new stockholders' equity will be S(Round to the nearest dollar.) ? Enter your answer in the answer box and then click Check Answer

Answer 1

Sales grow by 9.5% next year & pays out 80.3% of it's net income.

a) New stock holder's equity using sales forecasted method :

Forcasted next years income statement :

Particulars	Amount
Sales ($2,07,500 + 9.5%)	$2,27,212.50
Less : Cost except depriciation ($1,00,820 + 9.5%)	($1,10,397.90)
EBITDA	$1,16,814.60
Less : Depriciation (same)	($5,930)
EBIT	$1,10,884.60
Less : Interest expenses (same)	($570)
Pre tax income	$1,10,314.60
Less : Income tax (Note 1)	($38,610.11)
Net income	$71,704.49
Less : Payout @ 80.3% ($71,704.49 * 80.3%)	($57,578.71)
Transfer to retained earnings (part of stockholders equity)	$14,125.78

Note 1 : Income tax calculations

Income tax rate = Last year income tax / Pre tax income

Income tax rate = $35,063 / $1,00,180

Income tax rate = 0.35 or 35%

Now,

Income tax for forcasted next year = Forcasted Pre tax income * Tax rate

Income tax for next year = $1,10,314.60 * 35%

Income tax for next year = $38,610.11

Calculation of new stockholders equity for next year = Last year stockholders equity + Retained earnings for forcasted year

New stockholders equity = $25,510 + 14,125.78

New stockholders equity = $39,635.78

b) New accounts payable for next year = Last years accounts payable + (Last year accounts payable * growth rate)

Here,

Growth rate = 9.5%

Last year accounts payable = $1,560

Now,

New accounts payable = $1,560 + ($1,560 * 9.5%)

New accounts payable = $1,560 + $148.20

New accounts payable = $1,708.20