.I had forecasted my business to do $1,150,000.00 this year and in the end I did less than $550,000.00.However, the current state of affairs is a perfect example of why budgets and forecasts are not static, but are continually revisited and updated with the most recent information available and we will use these ideas as the basis of our final, learning from COVID.

Please provide a short explanation for each decision and consequence.What would you do? Finance and accounting always assume there is a correct answer. There is no "correct answer" here it is the process that counts.

PROBLEM 1 (forecasting)

Given the attached key to case # 2, I have changed the dates to more closely coincide with the problems of this year. Please adjust the forecasted income statement to reflect a 40% drop in sales, not the increase from $3850.00 to $4300.00, but a decrease from $3850.00 to $2310.00. This original forecast was completed by the percent of sales method and all original assumptions apply.

Answer the following questions;

What is the increased in retained earnings if dividends paid are $22

What amount of financing should I seek?

Should I continue to purchase the new piece of equipment or not?If the answer is no what affect would that have on the amount if financing I require?

Problem # 1

On the Lake Enterprises

Pro Forma Income Statement

For the Year Ended Dec. 31, 2016

2019 2018 2017 Average

Sales $4,300 $3,850 $3,432 100.00% 100.00% 100.00%

Cost of Goods Sold $3,609 $3,250 $2,864 84.42% 83.45% 83.93%

Gross Profit $691 $600 $568 15.58% 16.55% 16.07%

Selling and G&A Expenses $335 $330 $240 8.58% 6.99% 7.79%

Fixed Expenses $100 $100 $100 2.60% 2.91% 2.76%

Depreciation Expense $25 $20 $19 0.52% 0.55% 0.54%

EBIT $231 $150 $209 3.89% 6.09% 4.99%

Interest Expense $76 $76 $63 1.97% 1.82% 1.90%

Earnings Before Taxes $155 $74 $147 1.91% 4.27% 3.09%

Taxes $62 $29 $59 0.77% 1.71% 1.24%

Net Income $93 $44 $88 1.15% 2.56% 1.86%

* Forecast

Notes:

Tax Rate 0.4

Additional Depreciation 5000

Cash and Equivalents $52.00 $52.00 $57.60

Accounts Receivable $444.51 $402.00 $351.20

Inventory $914.90 $836.00 $715.20

Total Current Assets $1,411.40 $1,290.00 $1,124.00

Plant & Equipment $577.00 $527.00 $491.00

Accumulated Depreciation $191.20 $166.20 $146.20

Net Fixed Assets $385.80 $360.80 $344.80

Total Assets $1,797.20 $1,650.80 $1,468.80

Liabilities and Owner's Equity

Accounts Payable $189.05 $175.20 $145.60

Short-term Notes Payable $225.00 $225.00 $200.00

Other Current Liabilities $163.38 $140.00 $136.00

Total Current Liabilities $577.43 $540.20 $481.60

Long-term Debt $424.61 $424.61 $323.43

Total Liabilities $1,002.04 $964.81 $805.03

Common Stock $460.00 $460.00 $460.00

Retained Earnings $297.04 $225.99 $203.77

Total Shareholder's Equity $757.04 $685.99 $663.77

Total Liabilities and Owner's Equity $1,759.08 $1,650.80 $1,468.80

Notes:

Net Addition to Plant & Equipment $50.00

Life of New Equipment in Years 10

New Depreciation (Straight-line) $5.00