Question

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	0
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	$29,160		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%)	1,240
Net income	$ 1,860
Dividends (45%)	$    837
Addition to retained earnings	$ 1,023

1. Suppose 2019 sales are projected to increase by 10% 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 11%, 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 will 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: $   
2. 
   
3. What is the resulting total forecasted amount of the line of credit? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

W ' v a 1x 3 1 ENG 03:14 = 19-03-2020 ... o X 11149 X fc IG IH IL IK IL IM 10 IP IQ IR A 145 146 147 148 149 STEVENS INCOME STATEMENT 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 SALES OPERATING COSTS EBIT INTEREST EBT TAX NET INCOME DIVIDEND (45%) ADDITION TO RETAINED EARNINGS 2018 2019 10% INCREASE 36000 39600 32440 35684 3560 3916 460 616 (11% OF (3500 + 2100 = MORTGAGE BOND + NOTES PAYABLE) 3100 3300 1240 1320 1860 1980 837 891 1023 1089 ... AFN BANKING NOTE Sheet2 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARRANT refund ... + 7

W ' v a 1x 3 ENG 03:15 19-03-2020 ... o X IM186 X fc IG IH D IKLIM IN 10 P 1Q IR 150 166 167 168 169 TOTAL LIABILITIES & EQUITY 2018 1080 2019 1188 10% INCREASE 7128 10% INCREASE 9900 10% INCREASE 2018 4320 2880 6480 9000 ACCOUNTS PAYABLE ACCRUALS LINE OF CREDIT NOTES PAYABLE 2019 4752 10% INCREASE 3168 10% INCREASE 1107 (BALANCING FIGURE) 2100 2100 12600 13860 10% INCREASE 170 FORECASTED BALANCESHEET 171 TOTAL ASSETS 172 173 CASH 174 RECEIVABLES 175 INVENTORIES 176 177 178 179 NET FIXED ASSETS 180 181 TOTAL 182 183 184 185 ANS a TOTAL ASSETS 186 AFN 187 188 ANS b LINE OF CREDIT 189 190 ... AFN BANKING NOTE Sheet2 MORTGAGE BONDS COMMON STOCK RETAINED EARNINGS TOTAL 3500 3500 12860 29160 3500 3500 13949 (12860 + 1089) 32076 2916032076 $ $ 32,076 1,107 $ 1,107 51 53 CLEAN PRICE 510 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARRANT refund ... + 7