| Consider the following financial statements for Industrial Supply Company. | | (Actual) | | | | | December 31, | | | | Balance sheet | Year 1 | Comments | | Assets | | Cash | | $ 400,000 | | 25% increase (assumption) | | Accounts receivable | | 2,100,000 | | 25% increase (assumption) | | Inventories | | 3,900,000 | | 25% increase (assumption) | | Total current assets | | $ 6,400,000 | | | | Fixed assets, net | | $ 1,100,000 | | 25% increase (assumption) | | Total assets (A) | | $ 7,500,000 | | | | | | Liabilities and Equity | | Accounts payable (CL) | | $ 1,200,000 | | 25% increase (assumption) | | Notes payable | | 1,300,000 | | | | | | Total current liabilities | | $ 2,500,000 | | | | Long-term debt | | 500,000 | | No change (assumption) | | Stockholders equity | | 4,500,000 | | | | | | Total liabilities and equity | | $ 7,500,000 | | | | | | Income Statement | Year 1 | | | Sales (S) | | $14,800,000 | | 25% increase (forecasted) | | Expenses, including interest & taxes | | 13,500,000 | | | | Earnings after taxes (EAT) | | $ 1,300,000 | | | | Dividends paid (D) | | 250,000 | | No change (assumption) | | Retained earnings | | $ 1,050,000 | | | | | | Selected Financial Ratios | | Current ratio | | 2.56 times | | | | Debt ratio | | 40.00% | | | | Return on stockholders equity | | 28.89% | | | | Net profit margin on sales | | 8.78% | | | Determine the amount of additional financing needed and pro forma financial statements (that is, balance sheet, income statement, and selected financial ratios) for Year 2 under the following conditions: | Increase in Sales | Increase in Expenses | | $3,700,000 | $3,375,000 | Assume the following: - The company plans to maintain its dividend payments and long-term debt at the same level in Year 2 as in Year 1.
- All of the additional financing needed is in the form of short-term notes payable.
- Levels of cash, accounts receivable, inventories, net fixed assets and accounts payable increase proportionately as sales increase.
Round your answers in dollar form to the nearest dollar. Round your answers for financial ratios to two decimal places. Additional Financing Needed: $ | | (Actual) | (Pro forma) | | | | | December 31, | December 31, | | | | Balance sheet | Year 1 | Year 2 | | Assets | | Cash | | $ 400,000 | | | $ | | | Accounts receivable | | 2,100,000 | | | | | | Inventories | | 3,900,000 | | | | | | Total current assets | | $ 6,400,000 | | | $ | | | Fixed assets, net | | $ 1,100,000 | | | $ | | | Total assets (A) | | $ 7,500,000 | | | $ | | | | | Liabilities and Equity | | Accounts payable (CL) | | $ 1,200,000 | | | $ | | | Notes payable | | 1,300,000 | | | | | | | | Total current liabilities | | $ 2,500,000 | | | $ | | | Long-term debt | | 500,000 | | | | | | Stockholders equity | | 4,500,000 | | | | | | | | Total liabilities and equity | | $ 7,500,000 | | | $ | | | | | Income Statement | Year 1 | Year 2 | | Sales (S) | | $14,800,000 | | | $ | | | Expenses, including interest & taxes | | 13,500,000 | | | | | | Earnings after taxes (EAT) | | $ 1,300,000 | | | $ | | | Dividends paid (D) | | 250,000 | | | | | | Retained earnings | | $ 1,050,000 | | | $ | | | | | Selected Financial Ratios | | Current ratio | | 2.56 times | | | times | | | Debt ratio | | 40.00% | | | % | | | Return on stockholders equity | | 28.89% | | | % | | | Net profit margin on sales | | 8.78% | | | % | | |
