6. The chief financial officer of PartsCo returns and explains that there is a possibility of a huge contract being awarded to the company. If this occurs, then the company is expected to achieve 25 percent revenue growth annually for the next five years. How does this affect the pro forma balance sheet? Which accounts are notably different than in prior situations?

the prior situation and answer

1. The chief financial officer of PartsCo has asked you to rerun the forecast of the companys income statement and balance sheet at a growth rate of 3 percent. If the company generates more cash than it needs, how could the balance sheet be adjusted to handle this? What alternatives exist to handle new cash
2. ANSWER This excess cash is necessarily their profit. To adjust this cash into the balance sheet, the company could use the money to pay off some of their liabilities. This will leave no lingering cash, and reduce the liabilities on the balance sheet. They could also pay this excess cash to its shareholders in the form of dividends, which would affect shareholder equity, also on the balance sheet. In order to rerun the forecast, and to which it generates surplus cash, the same can be adjusted in the balance sheet by creating a reserve against the excess cash. This is beneficial for the company as the excess cash generated for the company would come in handy for the paying off liabilities.