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a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020.

a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $200,000 per year for the next 4 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 20% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $90 and variable costs at 70% of revenue. The company's policy is to pay out one-half of net income as dividends and to maintain a book debt ratio of 20% of total capital. INCOME STATEMENT, 2019 (Figures in $ thousands) $ 1,800 Revenue Fixed costs 90 Variable costs (70% of revenue) Depreciation Interest (6% of beginning-of-year debt) Taxable income 1,260 160 18 272 Taxes (at 35%) 95 Net income 24 $ 89 $ 88 177 Dividends Addition to retained earnings BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 Assets Net working capital Fixed assets $ 400 800 Total assets $ 1,200 Liabilities and shareholders' equity Debt 300 Equity Total liabilities and shareholders' equity 900 $ 1,200 Required: a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?
Transcribed Image Text:The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $200,000 per year for the next 4 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 20% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $90 and variable costs at 70% of revenue. The company's policy is to pay out one-half of net income as dividends and to maintain a book debt ratio of 20% of total capital. INCOME STATEMENT, 2019 (Figures in $ thousands) $ 1,800 Revenue Fixed costs 90 Variable costs (70% of revenue) Depreciation Interest (6% of beginning-of-year debt) Taxable income 1,260 160 18 272 Taxes (at 35%) 95 Net income 24 $ 89 $ 88 177 Dividends Addition to retained earnings BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 Assets Net working capital Fixed assets $ 400 800 Total assets $ 1,200 Liabilities and shareholders' equity Debt 300 Equity Total liabilities and shareholders' equity 900 $ 1,200 Required: a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?
Answer is not complete. Complete this question by entering your answers in the tabs below. Reg A1 Reg A2 Req B Req c Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. (Enter your answers in thousands.) Balance Sheet Year-End 2020 Assets Net working capital Fixed assets Total assets Liabilities & Shareholders' Equity 500 1,000 $ 1,500 Debt 2$ 1,068 Equity Total liabilities & shareholders' equity $ 1,500 %24
Transcribed Image Text:Answer is not complete. Complete this question by entering your answers in the tabs below. Reg A1 Reg A2 Req B Req c Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. (Enter your answers in thousands.) Balance Sheet Year-End 2020 Assets Net working capital Fixed assets Total assets Liabilities & Shareholders' Equity 500 1,000 $ 1,500 Debt 2$ 1,068 Equity Total liabilities & shareholders' equity $ 1,500 %24
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