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The AFN equation and the financial statement–forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Leeding Engines Ltd. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable = –$94,555 + 0.249(Sales) Inventories = $9,900 + 0.180(Sales) Leeding Engines Ltd. currently has sales of $1,230,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Leeding Engines Ltd.’s forecasted values for accounts receivable and inventories needed to support next year’s sales. Forecasted Values for Next Year Accounts receivable

The AFN equation and the financial statement–forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Leeding Engines Ltd. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable = –$94,555 + 0.249(Sales) Inventories = $9,900 + 0.180(Sales) Leeding Engines Ltd. currently has sales of $1,230,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Leeding Engines Ltd.’s forecasted values for accounts receivable and inventories needed to support next year’s sales. Forecasted Values for Next Year Accounts receivable

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 AFN equation and the financial statement–forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales.
Leeding Engines Ltd. has used its historical sales and asset data to estimate the following regression equations:
Accounts Receivable = –$94,555 + 0.249(Sales)
Inventories = $9,900 + 0.180(Sales)
 
Leeding Engines Ltd. currently has sales of $1,230,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Leeding Engines Ltd.’s forecasted values for accounts receivable and inventories needed to support next year’s sales.
Forecasted Values for Next Year
 
Accounts receivable     
Inventories     
 
Based on the next year’s accounts receivable and inventory levels predicted by Leeding Engines Ltd.’s regression equations, the firm’s DSO for next year is expected to be    . Use 365 days as the length of a year in all calculations.
The AFN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Leeding Engines Ltd. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$94,555 +0.249(Sales) $9,900+ 0.180(Sales) Leeding Engines Ltd. currently has sales of $1,230,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculati Leeding Engines Ltd.'s forecasted values for accounts receivable and inventories needed to support next year's sales. Forecasted Values for Next Year Accounts receivable Inventories Leeding Engines Ltd. currently has sales Leeding Engines Ltd.'s forecasted values Forecasted Values for Next Year Accounts receivable Forecasted Values for Next Year Accounts receivable Inventories Leeding Engines Ltd. currently has sales $251,285 0, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Leeding Engines Ltd.'s forecasted values receivable and inventories needed to support next year's sales. 53.19 days Forecasted Values Accounts receivable 49.87 days Inventories 56.52 days 66.49 days Based on the next yea year is expected to be $244,773 0, but it expects sales to grow by 15% over the next year. Use the regression models to calculate $283,422 receivable and inventories needed to support next year's sales. $257,656 $270,539 $224,834 $238,059 $264,510 eceivable and inventory levels predicted by Leeding Engines Ltd.'s regression equations, the firm's DSO for next . Use 365 days as the length of a year in all calculations.
Transcribed Image Text:The AFN equation and the financial statement-forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Leeding Engines Ltd. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable Inventories -$94,555 +0.249(Sales) $9,900+ 0.180(Sales) Leeding Engines Ltd. currently has sales of $1,230,000, but it expects sales to grow by 15% over the next year. Use the regression models to calculati Leeding Engines Ltd.'s forecasted values for accounts receivable and inventories needed to support next year's sales. Forecasted Values for Next Year Accounts receivable Inventories Leeding Engines Ltd. currently has sales Leeding Engines Ltd.'s forecasted values Forecasted Values for Next Year Accounts receivable Forecasted Values for Next Year Accounts receivable Inventories Leeding Engines Ltd. currently has sales $251,285 0, but it expects sales to grow by 15% over the next year. Use the regression models to calculate Leeding Engines Ltd.'s forecasted values receivable and inventories needed to support next year's sales. 53.19 days Forecasted Values Accounts receivable 49.87 days Inventories 56.52 days 66.49 days Based on the next yea year is expected to be $244,773 0, but it expects sales to grow by 15% over the next year. Use the regression models to calculate $283,422 receivable and inventories needed to support next year's sales. $257,656 $270,539 $224,834 $238,059 $264,510 eceivable and inventory levels predicted by Leeding Engines Ltd.'s regression equations, the firm's DSO for next . Use 365 days as the length of a year in all calculations.
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