At year-end 2019, Wallace Landscapings total assets were $2.17 million, and its accounts payable were $560,000. Sales,

Question:

At year-end 2019, Wallace Landscaping’s total assets were $2.17 million, and its accounts payable were $560,000. Sales, which in 2019 were $3.5 million, are expected to increase by 35% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $625,000 in 2019, and retained earnings were $395,000. Wallace has arranged to sell $195,000 of new common stock in 2020 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2020. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 45% of earnings will be paid out as dividends.

a. What were Wallace’s total long-term debt and total liabilities in 2019?

b. How much new long-term debt financing will be needed in 2020? (Hint: AFN 2 New stock 5 New long-term debt.)

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...

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