Question
Edman Company is a merchandiser that has provided the following balance sheet and income statement for this year. Beginning Balance Ending Balance Assets Cash $
Edman Company is a merchandiser that has provided the following balance sheet and income statement for this year.
Beginning Balance Ending Balance Assets Cash $ 62,800 $ 150,000 Accounts receivable 160,000 180,000 Inventory 230,000 240,000 Property, plant & equipment (net) 833,000 793,000 Other assets 37,000 37,000 Total assets $ 1,322,800 $ 1,400,000 Liabilities & Stockholders Equity Accounts payable $ 70,000 $ 80,000 Bonds payable 550,000 550,000 Common stock 410,000 410,000 Retained earnings 292,800 360,000 Total liabilities & stockholders equity $ 1,322,800 $ 1,400,000
This Year Sales $ 2,500,000 Variable expenses: Cost of goods sold 1,600,000 Variable selling expense 240,000 Total variable expenses 1,840,000 Contribution margin 660,000 Fixed expenses: Fixed selling expenses 220,000 Fixed administrative expenses 300,000 Total fixed expenses 520,000 Net operating income 140,000 Interest expense (8%) 44,000 Net income before tax 96,000 Tax expense (30%) 28,800 Net income $ 67,200 3. To evaluate alternative 1, refer to the Requirement 3 Financials tab within your template. Assume the company streamlines it working capital management practices with the following estimated impacts:
- Next years ending balance in accounts receivable decreases by $80,000 compared to its beginning balance.
- Next years ending balance in inventory decreases by $120,000 compared to its beginning balance.
- Next years ending balance in property, plant, and equipment (net) decreases by $40,000 compared to its beginning balance to reflect next years depreciation expense.
- Next years ending balance in accounts payable decreases by $40,000 compared to its beginning balance.
- Next years ending balance in bonds payable decreases by $300,000 compared to its beginning balance to reflect a retirement of bonds payable.
- Next years ending balances in other assets and common stock are the same as their beginning balances.
- Next years total sales, variables expenses, fixed expenses, and net operating income are the same as this year.
a. Based on the above estimated impacts, use Excel formulas to calculate ending balances as needed in column C. What is the ending balance in the following accounts?
b. Create formulas within column D that calculate next years average balances for all balance sheet accounts (except Cash which will automatically be computed for you). What is the average balance in the following accounts?
c. What is the companys estimated average total liabilities and stockholders equity for next year?
Edman Company is a merchandiser that has provided the following balance sheet and income statement for this year.
Beginning Balance | Ending Balance | ||||
Assets | |||||
Cash | $ | 62,800 | $ | 150,000 | |
Accounts receivable | 160,000 | 180,000 | |||
Inventory | 230,000 | 240,000 | |||
Property, plant & equipment (net) | 833,000 | 793,000 | |||
Other assets | 37,000 | 37,000 | |||
Total assets | $ | 1,322,800 | $ | 1,400,000 | |
Liabilities & Stockholders Equity | |||||
Accounts payable | $ | 70,000 | $ | 80,000 | |
Bonds payable | 550,000 | 550,000 | |||
Common stock | 410,000 | 410,000 | |||
Retained earnings | 292,800 | 360,000 | |||
Total liabilities & stockholders equity | $ | 1,322,800 | $ | 1,400,000 | |
This Year | ||
Sales | $ | 2,500,000 |
Variable expenses: | ||
Cost of goods sold | 1,600,000 | |
Variable selling expense | 240,000 | |
Total variable expenses | 1,840,000 | |
Contribution margin | 660,000 | |
Fixed expenses: | ||
Fixed selling expenses | 220,000 | |
Fixed administrative expenses | 300,000 | |
Total fixed expenses | 520,000 | |
Net operating income | 140,000 | |
Interest expense (8%) | 44,000 | |
Net income before tax | 96,000 | |
Tax expense (30%) | 28,800 | |
Net income | $ | 67,200 |
3. To evaluate alternative 1, refer to the Requirement 3 Financials tab within your template. Assume the company streamlines it working capital management practices with the following estimated impacts:
a. Based on the above estimated impacts, use Excel formulas to calculate ending balances as needed in column C. What is the ending balance in the following accounts? b. Create formulas within column D that calculate next years average balances for all balance sheet accounts (except Cash which will automatically be computed for you). What is the average balance in the following accounts? c. What is the companys estimated average total liabilities and stockholders equity for next year? |
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