Additional Information:

1.Purchases in Year 1 are $480,000.

2.In Year 2, management expects 15% sales growth and a 10% increase in all expenses except for depreciation, which increases by 5%.

3.Management expects an inventory turnover ratio of 5.5 for Year 2.

4.A receivable collection period of 90 days, based on year-end accounts receivable, is planned for Year 2.

5.Year 2 income taxes, at the same rate of pretax income for Year 1, will be paid in cash.

6.Notes payable at the end of Year 2 will be $30,000.

7.Long-term debt of $25,000 will be paid in Year 2.

8.FAX desires a minimum cash balance of $20,000 in Year 2.

9.The ratio of accounts payable to purchases for Year 2 is the same as in Year 1.

10.All selling and administrative expenses will be paid in cash in Year 2.

11.Marketable securities and equity accounts at the end of Year 2 are the same as in Year 1.

Required:

a.Prepare a statement of forecasted cash inflows and outflows (what-if analysis) for the year ended December 31, Year 2.

b.Will FAX Corporation have to borrow money in Year 2?

CHECK Forecast cash needed, $55,920

FAX CORPORATION Income Statement For Year Ended December 31, Year 1 Net sales. . . ... $ 960,000 Cost of goods sold (excluding depreciation) . ..... .. (550,000) Gross profit. . . .. . 410,000 Depreciation expense . .. $ 30,000 Selling and administrative expenses ... 160,000 (190,000) Income before taxes . ... 220,000 Income taxes (state and federal) (105,600) Net income . . . .. $ 114,400FAX CORPORATION Balance Sheet December 31, Year 1 Assets Current assets Cash . . . ... . . . . . . . . $ 30,000 Marketable securities . . . . . . 5,500 Accounts receivable. . . . . 52,000 Inventory . . . .. . . 112,500 Total current assets. . $200,000 Plant and equipment . 630,000 Less: Accumulated depreciation . . . ... (130,000) 500,000 Total assets . ...... $700,000 Liabilities and Equity Current liabilities Accounts payable . .. . .. . .. $ 60,000 Notes payable . 50.000 Total current liabilities . . $110,000 Long-term debt . .. . . . ............ 150,000 Equity Capital stock. . .. . . . . . . .. 250,000 Retained earnings... ... . . . 190,000 440,000 Total liabilities and equity ...... . . . . . . ... $700,000