Develop a pro forma income statement and balance sheet for the White & Pinkman Challenge Problem Corporation. The company's 2015 financial statements are shown below. Base your forecast on the financial statements and the following assumptions:

Sales growth is predicted to be 20 percent in 2016.

Depreciation expense, interest expense, gross plant and equipment, notes payable, long-term debt, and equity accounts other than retained earnings in 2016 will be the same as in 2015.

The company's tax rate in 2016 will be 40 percent. The same dollar amount of dividends will be paid to common stockholders in 2016

as in 2015. Bad debt allowance in 2016 will be the same percentage of accounts receivable as

it was in 2015.

White & Pinkman Corporation

Income Statement for 2015

Sales

$ 10,000,000

Cost of Goods Sold

4,000,000

Gross Profit

6,000,000

Selling and Administrative Expenses

800,000

Depreciation Expense

2,000,000

Earnings before Interest and Taxes (EBIT)

3,200,000

Interest Expense

1,350,000

Earnings before Taxes (EBT)

1,850,000

Taxes (40%)

740,000

Net Income (NI)

1,110,000

Earnings per Share (EPS) (1 million shares)

$ 1.11

Common Stock Dividends Paid

400,000

Addition to Retained Earnings

710,000

White & Pinkman Corporation

Balance Sheet Dec. 31, 2015

Assets:

Current Assets:

Cash

$ 9,000,000

Marketable Securities

8,000,000

Accounts Receivable (Net)

1,000,000

Inventory

20,000,000

Prepaid Expenses

1,000,000

Total Current Assets

$ 39,000,000

Fixed Assets:

11,000,000

Plant and Equipment (Gross)

20,000,000

Less Accumulated Depreciation

(9,000,0000)

Plant and Equipment (Net)

11,000,000

Total Assets

$ 50,000,000

Liabilities and Equity:

Current Liabilities:

Accounts Payable

$ 12,000,000

Notes Payable

5,000,000

Accrued Expenses

3,000,000

Total Current Liabilities

$ 20,000,000

Bonds Payable (5%, due 2025)

20,000,000

Total Liabilities

$ 40,000,000

Common Stock (1 mil. shares, $1 par)

1,000,000

Capital in Excess of Par

4,000,000

Retained Earnings

5,000,000

Total Equity

10,000,000

Total Liabilities and Equity

$ 50,000,000

2. a. Calculate White & Pinkman's additional funds needed, or excess financing. If additional funds are needed, add them to long-term debt to bring the balance sheet into balance. If excess financing is available, increase common stock dividends paid (and, therefore, decrease 2016 retained earnings) until the balance sheet is in balance.

b. Calculate White & Pinkman's current ratio for the end of 2015 and 2016.

c. Calculate White & Pinkman's total asset turnover and inventory turnover ratios for 2016.

d. Calculate White & Pinkman's total debt to total assets ratio for 2015 and 2016. Assume there has been no additional long-term debt issued in 2016.

e. Calculate White & Pinkman's net profit margin, return on assets, and return on equity ratios for 2015 and 2016.

3. Comment on White & Pinkman's liquidity, asset productivity, debt management, and profitability based on the results of your ratio analysis in 2b through 2e.

4. What recommendations would you provide to management based on your forecast and analysis?