The most recent financial statements for Crosby, Incorporated, follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant. CROSBY, INCORPORATED 2020 Income Statement Sales $ 756,000 Costs 612,000 Other expenses 25,500 Earnings before interest and taxes $ 118,500 Interest paid 11,200 Taxable income $ 107,300 Taxes (23%) 24,679 Net income $ 82,621 Dividends $ 41,340 Addition to retained earnings 41,281 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 24,540 Accounts payable $ 58,600 Accounts receivable 33,890 Notes payable 15,500 Inventory 70,790 Total $ 74,100 Total $ 129,220 Long-term debt $ 104,000 Owners’ equity Fixed assets Common stock and paid-in surplus $ 99,000 Net plant and equipment $ 213,000 Retained earnings 65,120 Total $ 164,120 Total assets $ 342,220 Total liabilities and owners’ equity $ 342,220 Complete the pro forma income statements below. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

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 most recent financial statements for Crosby, Incorporated, follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant.

CROSBY, INCORPORATED
2020 Income Statement
Sales		$ 756,000
Costs		612,000
Other expenses		25,500

Earnings before interest and taxes		$ 118,500
Interest paid		11,200

Taxable income		$ 107,300
Taxes (23%)		24,679

Net income		$ 82,621

Dividends	$ 41,340
Addition to retained earnings	41,281

CROSBY, INCORPORATED
Balance Sheet as of December 31, 2020
Assets		Liabilities and Owners’ Equity
Current assets		Current liabilities
Cash	$ 24,540	Accounts payable	$ 58,600
Accounts receivable	33,890	Notes payable	15,500

Inventory	70,790	Total	$ 74,100

Total	$ 129,220	Long-term debt	$ 104,000

		Owners’ equity
Fixed assets		Common stock and paid-in surplus	$ 99,000
Net plant and equipment	$ 213,000	Retained earnings	65,120

		Total	$ 164,120

Total assets	$ 342,220	Total liabilities and owners’ equity	$ 342,220

Complete the pro forma income statements below. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Calculate the EFN for 10, 15 and 40 percent growth rates. (A negative answer should be
indicated by a minus sign. Do not round intermediate calculations and round your
answers to the nearest whole number, e.g., 32.)
EFN
10%
15%
40%

Sales
Costs
Other expenses
EBIT
Interest paid
Taxable income
Taxes (23%)
Net income
Dividends
Add to RE
Pro Forma Income Statement
10% Sales Growth
15% Sales Growth
40% Sales Growth

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