At year-end 2005, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales,

Question:

At year-end 2005, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2005 were $2.5 million, are expected to increase by 25 percent in 2006. 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. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2005, and retained earnings were $295,000. Ambrose plans to sell new common stock in the amount of $75,000. The firm’s profit margin on sales is 6 percent; 60 percent of earnings will be retained.

a. What was Ambrose’s total debt in 2005?

b. How much new, long-term debt financing will be needed in 2006?

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...