Johnny’s Hardware Store’s sales were $550,000 during 2019, and its year-end assets were $440,000. For 2020, sales are expected to grow by 5%, and since the firm is operating at full capacity, its assets must grow in proportion to sales. Its current liabilities consisted of $65,000 of accounts payable, $25,000 of notes payable, and $55,000 of accruals. Its after-tax profit margin is forecasted to be 17%, and the firm plans to pay out 25% of its earnings. Based on the AFN equation, what is the firm’s additional funds needed (AFN) for 2020? (HINT: do notes payable spontaneously increase with sales? Show all work.) -$30,131 -$37,631 -$45,631 -$50,131-$57,6312.What types of liabilities, assets, and equity are not assumed to vary directly with sales?

As per the honor code, We’ll answer the first question since the exact one wasn’t specified. Please submit a new question specifying the one you’d like answered. Whenever the company wants to expand their operations and business, they use the additional funds needed concept to analyze how much funds are needed to invest into assets in order to increase production and sales. First, calculate forecasted sales of the year after expansion: Forecasted sales=Sales 2019×1+Growth rate=$550,000×1+5%=$577,500 Now calculate the change in sales from the year 2019: Change in sales=Forecasted sales-Sales 2019=$577,500-$550,000=$27,500 Now calculate Spontaneous liabilities: Spontaneous liabilities=Accounts payable+Accrued liabilities=$65,000+$55,000=$120,000 Now calculate additional funds needed (AFN): Hence, option 5 is the correct answer.

Answered: Johnny’s Hardware Store’s sales were…

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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Johnny’s Hardware Store’s sales were $550,000 during 2019, and its year-end assets were $440,000. For 2020, sales are expected to grow by 5%, and since the firm is operating at full capacity, its assets must grow in proportion to sales. Its current liabilities consisted of $65,000 of accounts payable, $25,000 of notes payable, and $55,000 of accruals. Its after-tax profit margin is forecasted to be 17%, and the firm plans to pay out 25% of its earnings. Based on the AFN equation, what is the firm’s additional funds needed (AFN) for 2020? (HINT: do notes payable spontaneously increase with sales? Show all work.)
1. -$30,131
2. -$37,631
3. -$45,631
4. -$50,131
5. -$57,631

2.What types of liabilities, assets, and equity are not assumed to vary directly with sales?

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