At year-end 2018, total assets for ABC Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3 are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales (grow at the same rate). ABC typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2018, and retained earnings were $475,000. ABC plans to sell new common stock in the amount of $130,000. The firm's profit margin on sales is 5%; 35% of earnings will be retained. a. What were ABC's total liabilities in 2018? b. How much new long-term debt financing will be needed in 2019?
Topic: Financial Planning &
At year-end 2018, total assets for ABC Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3 are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales (grow at the same rate). ABC typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2018, and
a. What were ABC's total liabilities in 2018?
b. How much new long-term debt financing will be needed in 2019?
(Hint: AFN - New stock = New long-term debt)
Part a:
Computation of total liabilities as follows:
Total assets = $1,800,000
Accounts Payable = $450,000
Common Stock = $500,000
Retained earnings = $475,000
Long-term Liabilities = Total assets - Accounts Payable - (Common Stock + Retained Earnings)
= $1,800,000 - $450,000 - ($500,000 + $475,000)
= $1,800,000 - $450,000 - $975,000
= $375,000
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
