ACCT 3380 Lecture Notes - Lecture 1: Retained Earnings, Pro Forma, Net Income
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| Hungry Kids 2012 Income Statement | ||
| Net sales | $ | 5,200 |
| Cost of goods sold | 3,660 | |
| Depreciation | 710 | |
| Earnings beforeinterest and taxes | $ | 830 |
| Interest paid | 200 | |
| Taxable Income | $ | 630 |
| Taxes | 212 | |
| Net income | $ | 418 |
| Dividends | $ | 76 |
| Addition to retained earnings | $ | 342 |
Hungry Kids | ||||||
| 2012 | 2012 | |||||
| Cash | $ | 30 | Accounts payable | $ | 1,300 | |
| Accounts rec. | 520 | Long-term debt | 1,620 | |||
| Inventory | 1,010 | Common stock | $ | 2,100 | ||
| Total | $ | 1,560 | Retained earnings | 3,740 | ||
| Net fixed assets | 7,200 | |||||
| Total assets | $ | 8,760 | Total liabilities &equity | $ | 8,760 | |
Hungry Kids is currently operating at full capacity. The profitmargin and the dividend payout ratio are held constant. Net workingcapital and fixed assets vary directly with sales. Sales areprojected to increase by 5 percent. What is the external financingneed?
$13
$27
$14
$29
$28
| Hungry Kids 2012 Income Statement | ||
| Net sales | $ | 4,800 |
| Cost of goods sold | 3,450 | |
| Depreciation | 690 | |
| Earnings beforeinterest and taxes | $ | 660 |
| Interest paid | 175 | |
| Taxable Income | $ | 485 |
| Taxes | 204 | |
| Net income | $ | 281 |
| Dividends | $ | 68 |
| Addition to retained earnings | $ | 213 |
Hungry Kids | ||||||
| 2012 | 2012 | |||||
| Cash | $ | 75 | Accounts payable | $ | 1,525 | |
| Accounts rec. | 480 | Long-term debt | 1,580 | |||
| Inventory | 970 | Common stock | $ | 2,100 | ||
| Total | $ | 1,525 | Retained earnings | 3,120 | ||
| Net fixed assets | 6,800 | |||||
| Total assets | $ | 8,325 | Total liabilities &equity | $ | 8,325 | |
Hungry Kids is currently operating at full capacity. The profitmargin and the dividend payout ratio are held constant. Net workingcapital and fixed assets vary directly with sales. Sales areprojected to increase by 4 percent. What is the external financingneed?
$50
$74
$73
$49
$72
Excess capacity
Krogh Lumber's 2016 financial statements are shown here.
| Krogh Lumber: Balance Sheet as of December 31, 2016 (Thousands of Dollars) | ||||
| Cash | $1,800 | Accounts payable | $7,200 | |
| Receivables | 10,800 | Notes payable | 3,472 | |
| Inventories | 12,600 | Accrued liabilities | 2,520 | |
| Total current assets | $25,200 | Total current liabilities | $13,192 | |
| Mortgage bonds | 5,000 | |||
| Net fixed assets | 21,600 | Common stock | 2,000 | |
| Retained earnings | 26,608 | |||
| Total assets | $46,800 | Total liabilities and equity | $46,800 | |
| Krogh Lumber: Income Statement for December 31, 2016 (Thousands of Dollars) | |||
| Sales | $36,000 | ||
| Operating costs including depreciation | 30,783 | ||
| Earnings before interest and taxes | $5,217 | ||
| Interest | 1,017 | ||
| Earnings before taxes | $4,200 | ||
| Taxes (40%) | 1,680 | ||
| Net income | $2,520 | ||
| Dividends (60%) | $1,512 | ||
| Addition to retained earnings | $1,008 | ||
Assume that the company was operating at full capacity in 2016 with regard to all items except fixed assets; fixed assets in 2016 were being utilized to only 61% of capacity. By what percentage could 2017 sales increase over 2016 sales without the need for an increase in fixed assets? Round your answer to two decimal places.
%
Now suppose 2017 sales increase by 20% over 2016 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 84% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2017 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 10%. Any stock issuances or repurchases will be made at the firm's current stock price of $40. Develop Krogh's projected financial statements. What are the balances of notes payable, bonds, common stock, and retained earnings? Round your answers to the nearest hundredth of thousand of dollars.
| Krogh Lumber Pro Forma Income Statement December 31, 2017 (Thousands of Dollars) | ||
| 2016 | 2017 | |
| Sales | $36,000 | $ |
| Operating costs (includes depreciation) | 30,783 | $ |
| EBIT | $5,217 | $ |
| Interest expense | 1,017 | $ |
| EBT | $4,200 | $ |
| Taxes (40%) | 1,680 | $ |
| Net Income | $2,520 | $ |
| Dividends | $1,512 | $ |
| Addition to RE | $1,008 | $ |
| Krogh Lumber Pro Forma Balance Statement December 31, 2017 (Thousands of Dollars) | ||
| 2016 | 2017 | |
| Cash | $1,800 | $ |
| Accounts receivable | 10,800 | $ |
| Inventories | 12,600 | $ |
| Fixed assets | 21,600 | $ |
| Total assets | $46,800 | $ |
| Payables + accruals | $9,720 | $ |
| Short-term bank loans | 3,472 | $ |
| Total current liabilities | $13,192 | $ |
| Long-term bonds | 5,000 | $ |
| Total debt | $18,192 | $ |
| Common stock | 2,000 | $ |
| Retained earnings | 26,608 | $ |
| Total common equity | $28,608 | $ |
| Total liab. and equity | $46,800 | $ |
