Tablon Inc. is a wholly owned subsidiary of Marbel Co. The philosophy of Marbel€™s management is to allow the subsidiaries to operate as independent units. Corporate control is exercised through the establishment of minimum objectives for each subsidiary, accompanied by substantial rewards for success and penalties for failure. The time period for performance review is long enough for competent managers to display their abilities.

Each quarter, the subsidiary is required to submit financial statements. The statements are accompanied by a letter from the subsidiary president explaining the results to date, a forecast for the remainder of the year, and the actions to be taken to achieve the objectives if the forecast indicates that the objectives will not be met.

Marbel management, in conjunction with Tablon management, had set the objectives listed
below for the year ending May 31, 2015. These objectives are similar to those set in previous years.

• Sales growth of 20%
• Return on stockholders€™ equity of 15%
• A long-term debt-to-equity ratio of not more than 1.0
• Payment of a cash dividend of 50% of net income, with a minimum payment of at least $400,000

Tablon€™s controller has just completed the financial statements for the six months ended November 30, 2014, and the forecast for the year ending May 31, 2015. The statements follow.

After a cursory glance at the financial statements, Tablon€™s president concluded that not all objectives would be met. At a staff meeting of the Tablon management, the president asked the controller to review the projected results and recommend possible actions that could be taken during the remainder of the year so that Tablon would be more likely to meet the objectives.

Required
1. Calculate the projected results for each of the four objectives established for Tablon Inc. State which results will not meet the objectives by year-end.
2. From the data presented, identify the factors that seem to contribute to the failure of Tablon Inc. to meet all of its objectives.
3. Explain the possible actions that the controller could recommend in response to the president€™s request.

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Tablon Inc. Income Statement (thousands omitted) Six Months Forecast for Year Ending May 31, Ended Year Ended May 31, 2014 November 30, 2014 2015 Sales $25,000 $13,000 $15,000 $ 8,000 $30,000 Cost of goods sold $16,000 Selling expenses 5,000 4,000 7,000 3,500 Administrative expenses and interest Income taxes (40%) 2,500 5,000 1,200 400 800 $23,200 $14,400 $28,800 Total expenses and taxes $ 1,800 $ 1,200 Net income 600 Dividends declared and paid 600 600 $ 1,200 Income retained 2$ 600 600 Tablon Inc. Statement of Financial Position (thousands omitted) November 30, May 31, 2014 Forecast for 2014 May 31, 2015 Assets Cash 2$ 400 500 500 Accounts receivable (net) 4,100 6,500 7,100 Inventory Plant and equipment (net) 7,000 8,500 7,000 8,600 6,500 7,300 Total assets $18,000 $22,500 $23,500 Liabilities and Equities Accounts payable $ 3,000 $ 4,000 $ 4,000 Accrued taxes 300 200 200 Long-term borrowing 6,000 9,000 10,000 Common stock 5,000 5,000 5,000 Retained earnings 3,700 4,300 4,300 Total liabilities and equities $18,000 $22,500 $23,500