This spreadsheet assignment is a continuation of the spreadsheet assignments given in earlier chapters. If you completed those assignments, you have a head start on this one.

Refer back to the instructions for preparing the revised financial statements for 2011 as given in (1) of the Cumulative Spreadsheet Analysis assignment in Chapter 3.

1. Skywalker wishes to prepare a forecasted balance sheet, a forecasted income statement, and a forecasted statement of cash flows for 2012. Use the financial statement numbers for 2011 as the basis for the forecast, along with the following additional information.

(a) Sales in 2012 are expected to increase by 40% over 2011 sales of $2,100.
(b) In 2012, new property, plant, and equipment acquisitions will be in accordance with the information in (q).
(c) The $480 in operating expenses reported in 2011 breaks down as follows: $15 in depreciation expense and $465 in other operating expenses.
(d) New long-term debt will be acquired in 2012 in accordance with (u).
(e) No cash dividends will be paid in 2012.
(f) New short-term loans payable will be acquired in an amount sufficient to make Skywalker’s current ratio in 2012 exactly equal to 2.0.
(g) Skywalker does not anticipate repurchasing any additional shares of stock during 2012.
(h) Because changes in future prices and exchange rates are impossible to predict, Skywalker’s best estimate is that the balance in accumulated other comprehensive income will remain unchanged in 2012.
(i) In the absence of more detailed information, assume that the balances in Investment Securities, Long-Term Investments, and Other Long-Term Assets will all increase at the same rate as sales (40%) in 2012. The balance in Intangible Assets will change in accordance with item (r).
(j) In the absence of more detailed information, assume that the balance in the other long-term liabilities account will increase at the same rate as sales (40%) in 2012.
(k) The investment securities are classified as available-for-sale securities. Accordingly, cash from the purchase and sale of these securities is classified as an investing activity.
(l) Assume that transactions impacting other long-term assets and other long-term liabilities accounts are operating activities.
(m) Cash and investment securities accounts will increase at the same rate as sales.
(n) The forecasted amount of accounts receivable in 2012 is determined using the forecasted value for the average collection period. The average collection period for 2012 is expected to be 14.08 days. To make the calculations less complex, this value of 14.08 days is based on forecasted end-of-year accounts receivable rather than on average accounts receivable.
(o) The forecasted amount of inventory in 2012 is determined using the forecasted value for the number of days’ sales in inventory. The number of days’ sales in inventory for 2012 is expected to be 107.6 days. To make the calculations simpler, this value of 107.6 days is based on forecasted end-of-year inventory rather than on average inventory.
(p) The forecasted amount of accounts payable in 2012 is determined using the forecasted value for the number of days’ purchases in accounts payable. The number of days’ purchases in accounts payable for 2012 is expected to be 48.34 days. To make the calculations simpler, this value of 48.34 days is based on forecasted end-of-year accounts payable rather than on average accounts payable.
(q) The forecasted amount of property, plant, and equipment (PP&E) in 2012 is determined using the forecasted value for the fixed asset turnover ratio. The fixed asset turnover ratio for 2012 is expected to be 3.518 times. To make the calculations simpler, this ratio of 3.518 is based on forecasted end-of-year gross property, plant, and equipment balance rather than on the average balance. (Note: For simplicity, ignore accumulated depreciation in making this calculation.)
(r) Skywalker has determined that no new intangible assets will be acquired in 2012. Intangible assets are amortized according to the information in (t).
(s) In computing depreciation expense for 2012, use straight-line depreciation and assume a 30-year useful life with no residual value. Gross PP&E acquired during the year is only depreciated for half the year. In other words, depreciation expense for 2012 is the sum of two parts: (1) a full year of depreciation on the beginning balance in PP&E, assuming a 30-year life and no residual value, and (2) a half-year of depreciation on any new PP&E acquired during the year, based on the change in the gross PP&E balance.
(t) Skywalker assumes a 20-year useful life for its intangible assets. Assume that the $100 in intangible assets reported in 2011 is the original cost of the intangibles. Include the amortization expense with the depreciation expense in the income statement.

For this exercise, make the following additional assumptions:

(u) New long-term debt will be acquired (or repaid) in an amount sufficient to make Skywalker’s debt ratio (total liabilities divided by total assets) in 2012 exactly equal to 0.80.
(v) Assume an interest rate on short-term loans payable of 6.0% and on longterm debt of 8.0%. Only a half-year’s interest is charged on loans taken out during the year. For example, if short-term loans payable at the end of 2012 is $15 and given that short-term loans payable at the end of 2011 were $10, total short-term interest expense for 2012 would be $0.75 [($10 × 0.06) + ($5 × 0.06 × 1/2)].

Clearly state any additional assumptions that you make.

2. Repeat (1) with the following changes in assumptions.

(a) The debt ratio in 2012 is exactly equal to 0.70.
(b) The debt ratio in 2012 is exactly equal to 0.90.

3. Comment on the differences in the forecasted values of cash from operating activities in 2012 under each of the following assumptions about the debt ratio: 0.70, 0.80, and 0.90. Explain exactly why a change in debt ratio has an impact on cash from operating activities.