Icy Wrists, Inc., a fashion apparel retailer, wants to prepare a 2021 Pro Forma Income Statement and a 2021 Balance Sheet using the following 2020 and 2019 data:

Fashion Trends, Inc.				Fashion Trends, Inc.
Income Statement				Balance Sheet
For the Period Ended Dec. 31, 2020				As of Dec. 31, 2020
	2020	2019		Assets	2020	2019
Sales	6,148,000	5,134,000		Cash and Equivalents	862,000	678,000
Cost of Goods Sold	4,176,000	3,422,000		Accounts Receivable	1,006,000	730,000
Gross Profit	1,972,000	1,712,000		Inventory	578,000	600,000
S,G&A Expenses	588,000	590,000		Total Current Assets	2,446,000	2,008,000
Fixed Expenses	70,000	70,000		Plant & Equipment	9,338,000	8,644,000
Depreciation Expense	478,000	446,000		Accumulated Depreciation	4,590,000	4,112,000
EBIT	836,000	606,000		Net Fixed Assets	4,748,000	4,532,000
Interest Expense	186,000	182,000		Total Assets	7,194,000	6,540,000
Earnings Before Taxes	650,000	424,000		Liabilities and Owners' Equity
Taxes	195,000	127,200		Accounts Payable	764,000	540,000
Net Income	455,000	296,800		Short-term Notes Payable	158,000	198,000
				Accrued Expenses	318,000	228,000
				Total Current Liabilities	1,240,000	966,000
				Long-term Debt	2,046,000	1,934,000
				Total Liabilities	3,286,000	2,900,000
				Common Stock	1,638,000	1,616,000
				Retained Earnings	2,270,000	2,024,000
				Total Shareholder's Equity	3,908,000	3,640,000
				Total Liabilities and Owners' Equity	7,194,000	6,540,000

The firm has forecasted sales of $7,100,000 and a tax rate of 40% for 2021. Cost of goods sold and S,G&A expense in 2021 are expected to be the average of their two-year proportion of sales. On the balance sheet, accounts receivable, inventory, accounts payable, and accrued expenses are expected to be at the two-year average of the proportion of these items in relation to sales. The firm has planned an investment of $500,000 in fixed assets in 2021, with an estimated life of 10 years and no salvage value. These fixed assets will be depreciated using the straight line depreciation method. All other financial statement items are expected to remain constant in 2021. Assume the firm pays 4% interest on short-term debt and 7% on long term debt. Assume that the dividends in 2021 will be the same as those paid in 2020.

1. What is the Discretionary Financing Needed (DFN) in 2021? Is this a surplus or deficit?
2. DFN will be absorbed by long-term debt. Set up an iterative worksheet to eliminate it.
3. Interpretation: please describe where you obtained information to develop analyses and interpret the results.

D E F G H J K L M NO P Q R S I U V Y 2019 C Balance Sheet For the Period Ended Dec. 31, 2020 2021 2020 Sales Cost of Goods Sold Gross Profit 10 Selling and G&A Expenses 11 Fixed Expenses 12 Depreciation Expense 13 EBIT 14 Interest Expense T. 15 Eamnings Before Taxes 16 Taxes 17 Net Income Forecast Notes Tax Rate Additional Depreciation Sorth-term Interest Rate 26 Long-term Interest Rate 27 Scenario Multiplier for part 28 DFN for Scenarios in part HW5-1-a 100% HW5-1-b interpretation . J L M N O D Please complete the yellow highlighted parts. Please show the formulas if the number or figures are not provided in the problem. 2020 2019 Balance Sheet As of Dec. 31, 2020 6 Assets 2021 Cash and Equivalents 8 Accounts Receivable Inventory 10 Total Current Assets Plant & Equipment Accumulated Depreciation 13 Net Fixed Assets 14 Total Assets 15 Liabilities and Owners' Equity Accounts Payable 17 Short-term Notes Payable 18 Accrued Expenses 19 Total Current Liabilities 20 Long-term Debt 21 Total Liabilities Common Stock Retained Earnings 24 Total Shareholder's Equity Total Liabilities and Owners' Equity HW5-1-a HW5-1-b interpretation B C D F G N O 11 Plant & Equipment 12 Accumulated Depreciation 13 Net Fixed Assets 14 Total Assets 15 Liabilities and Owners' Equity Accounts Payable Short-term Notes Payable 18 Accrued Expenses 19 Total Current Liabilities 20 Long-term Debt 21 Total Liabilities Common Stock 23 Retained Earnings 24 Total Shareholder's Equity 25 Total Liabilities and Owners' Equity * Forecast 28 Discretionary Financing Needed Total Accumulated DFN "Surplus" or "Deficit" or "Balanced" 31 2020 Dividends 32 Net Addition to Plan and Equipment 33 Life of New Equipment in Years 34 Salvage Value of New Equipment 35 New Depreciation (Straight Line) 36 Iteration HW5-1-a HW5-1-b interpretation SO D E F G H J K L M NO P Q R S I U V Y 2019 C Balance Sheet For the Period Ended Dec. 31, 2020 2021 2020 Sales Cost of Goods Sold Gross Profit 10 Selling and G&A Expenses 11 Fixed Expenses 12 Depreciation Expense 13 EBIT 14 Interest Expense T. 15 Eamnings Before Taxes 16 Taxes 17 Net Income Forecast Notes Tax Rate Additional Depreciation Sorth-term Interest Rate 26 Long-term Interest Rate 27 Scenario Multiplier for part 28 DFN for Scenarios in part HW5-1-a 100% HW5-1-b interpretation . J L M N O D Please complete the yellow highlighted parts. Please show the formulas if the number or figures are not provided in the problem. 2020 2019 Balance Sheet As of Dec. 31, 2020 6 Assets 2021 Cash and Equivalents 8 Accounts Receivable Inventory 10 Total Current Assets Plant & Equipment Accumulated Depreciation 13 Net Fixed Assets 14 Total Assets 15 Liabilities and Owners' Equity Accounts Payable 17 Short-term Notes Payable 18 Accrued Expenses 19 Total Current Liabilities 20 Long-term Debt 21 Total Liabilities Common Stock Retained Earnings 24 Total Shareholder's Equity Total Liabilities and Owners' Equity HW5-1-a HW5-1-b interpretation B C D F G N O 11 Plant & Equipment 12 Accumulated Depreciation 13 Net Fixed Assets 14 Total Assets 15 Liabilities and Owners' Equity Accounts Payable Short-term Notes Payable 18 Accrued Expenses 19 Total Current Liabilities 20 Long-term Debt 21 Total Liabilities Common Stock 23 Retained Earnings 24 Total Shareholder's Equity 25 Total Liabilities and Owners' Equity * Forecast 28 Discretionary Financing Needed Total Accumulated DFN "Surplus" or "Deficit" or "Balanced" 31 2020 Dividends 32 Net Addition to Plan and Equipment 33 Life of New Equipment in Years 34 Salvage Value of New Equipment 35 New Depreciation (Straight Line) 36 Iteration HW5-1-a HW5-1-b interpretation SO