Garlington Technologies Inc.’s 2007 financial statements are shown below.

Garlington Technologies Inc.: Income Statement for December 31, 2007

Suppose that in 2008 sales increase by 10% over 2007 sales and that 2008 dividends will increase to $112,000. Construct the pro forma financial statements using the percent of sales method. Assume the firm operated at full capacity in 2007. Use an interest rate of 13% on the debt balance at the beginning of the year. Assume that the AFN will be in the form of notes payable.

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Garlington Technologies Inc.: Balance Sheet as of December 31, 2007 $ 180,000 Accounts payable Notes payable 360,000 720,000 Accruals Total current liabilities Cash Receivables Inventories Total current assets Fixed assets Total assets $1,260,000 1,440,000 Common stock Retained earnings $2,700,000 Total liabilities and equity $360,000 156,000 180,000 $ 696,000 1,800,000 204,000 $2,700,000