Question

The most recent financial statements for Marpole Inc., are shown here (assuming no income taxes): Statement of Comprehensive Income Sales $ 6,500 Costs 4,610 Net income $ 1,890 Assets Statement of Financial Position $ 26,500 Debt Equity $ 26,500 Total $12,500 14,000 $26,500 Total Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $7,150. What is the external financing needed? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit $ sign in your response.) External financing needed

Answer 1

Solution-

Sales increase = [$7150 - $6500] /$6500

= 0.10 or 10%

Assets and costs increase proportionally , so the pro forma of financial statements will look like this -

Pro forma income statement

Sales	$7150
Cost [4610 *110%]	5071
Net income	$2079

Pro forma balance sheet

Assets [26500 * 110%]	$29150	Debt	$12500
		Equity [Note]	16079
Total	$29150	Total	$28579

Note - Here , no dividends are paid . Equity account increase by net income, so-

Equity = $14000 + $2079

= $16079

External financing needed = Total assets - Total liabilities and equity

= $29150 - $28579

= $571

Ans :-   

External financing needed

$571