At year-end 2018, total assets for Arrington Inc. were$1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million,are expected to increase by 25% in 2019. Total assets and accounts payable are proportionalto sales, and that relationship will be maintained; that is, they will grow at the same rate assales. Arrington typically uses no current liabilities other than accounts payable. Commonstock amounted to $500,000 in 2018, and retained earnings were $475,000. Arrington plansto sell new common stock in the amount of $130,000. The firm’s profit margin on sales is5%; 35% of earnings will be retained.a. What were Arrington’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.)
At year-end 2018, total assets for Arrington Inc. were
$1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million,
are expected to increase by 25% in 2019. Total assets and accounts payable are proportional
to sales, and that relationship will be maintained; that is, they will grow at the same rate as
sales. Arrington typically uses no current liabilities other than accounts payable. Common
stock amounted to $500,000 in 2018, and
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 Arrington’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.)
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