For questions 1 to 7, please use the following projections for Top-A1 Inc.:
Total sales of $150,000
Cost of goods sold equal to 76 percent of sales
Total expenses equal to 14 percent of sales
Tax rate of 35 percent
Beginning equity of $50,000
Beginning inventory of $12,000
Age of ending inventory of 60 days
Minimum cash balance of $10,000
Accounts receivable of 30 days
🔒
Unlock the complete assignment
You are viewing the free preview. Purchase this assignment once to reveal the complete resource.
$9.99 USD
Secure checkout is completed by Stripe.
Fixed assets of $60,000
Accounts payable of 35 days
1. Calculate the projected gross profit for Top-A1.
2. Calculate the projected purchases for Top-A1.
3. Create an entire pro forma income statement for Top-A1. Be sure to calculate the projected net earnings.
4. Assume Top-A1 has a dividend payout of 40 percent. Calculate the projected change in retained earnings for Top-A1.
5. Calculate the projected accounts receivable for Top-A1.
6. Calculate the projected accounts payable for Top-A1.
7. Create a pro forma balance sheet. Calculate the long-term debt as the balancing amount.
SOLUTION
| Top-A1 Inc. Pro Forma Income Statement ($000s unless otherwise noted) | Top-A1 Inc. Pro Forma Income Statement ($000s unless otherwise noted) | Top-A1 Inc. Pro Forma Income Statement ($000s unless otherwise noted) | Top-A1 Inc. Pro Forma Income Statement ($000s unless otherwise noted) | | |
|---|
| | Assumption | | | |
| Sales | | given | | 150.0 | |
| Cost of goods sold: | | | | | |
| Beginning inventory | | last year's end. inventory | 12.0 | | |
| ` | | C.G.S. + end. inv. - beg. inv. | 120.7 | | Q2. |
| Cost of goods available | | | 132.7 | | |
| - Ending inventory | 60 | days of cost of sales | 18.7 | | |
| Cost of goods sold | | | | 114.0 | |
| Gross profit | 0.240 | fraction of sales | | 36.0 | Q1. |
| Total operating expenses | 0.14 | fraction of sales | | 21.0 | |
| Earnings before tax (EBT) | | | | 15.0 | |
| Taxes | 0.35 | fraction of EBT | | 5.3 | |
| Net earnings (NE) | | | | 9.8 | Q3. |
| Dividends | 0.40 | fraction of NE | | 3.9 | |
| Change in retained earnings | | | | 5.9 | Q4. |
| | | Year 0 | Year 1 | |
| Top-A1 Inc. Pro Forma Balance Sheet ($000s unless otherwise noted) | Top-A1 Inc. Pro Forma Balance Sheet ($000s unless otherwise noted) | Top-A1 Inc. Pro Forma Balance Sheet ($000s unless otherwise noted) | | | |
| | Assumption | | | |
| Assets: | | | | | |
| Cash | | assumed minimum | | 10.0 | |
| Accounts receivable | 30.0 | days of accounts receivable | | 12.3 | Q5. |
| Inventory | 60.0 | days of cost of sales | | 18.7 | |
| Fixed assets | | assumed amount | | 60.0 | |
| Total assets | | | | 101.1 | |
| Liabilities: | | | | | |
| Accounts payable | 35.0 | days of payables | | 11.6 | Q6. |
| Long-term debt | | "balancing amount" | | 33.6 | Q7. |
| Total liabilities | | total liability & equity - equity | | 45.2 | |
| Equity | | beginning + change in ret. earn. | 50.0 | 55.9 | |
| Total liabilities and equity | | same as total assets | | 101.1 | |