Lorien Company wishes to prepare a forecasted income statement and a forecasted balance sheet for 2012. Loriens balance sheet and income statement for 2011 follow.

Question

81 users unlocked this solution today!

Lorien Company wishes to prepare a forecasted income statement and a forecasted balance sheet for 2012. Lorien’s balance sheet and income statement for 2011 follow.
Balance Sheet 2011
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,390
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100
Bank loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . $1,390
Income Statement 2011
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 650
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60
In addition, Lorien has assembled the following forecasted information regarding 2012:
(a) Sales are expected to increase to $1,200.
(b) Lorien does not expect to buy any new property, plant, and equipment during 2012.
(c) Because of adverse banking conditions, Lorien does not expect to receive any new bank loans in 2012.
(d) Lorien plans to pay cash dividends of $15 in 2012.

Instructions:
1. Prepare a forecasted balance sheet and a forecasted income statement for 2012. Clearly state what assumptions you make.
2. If you construct your forecasted balance sheet in (1) correctly, total forecasted paid-in capital for 2012 should be negative. Is this possible? Explain.