Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Key Graphics expects to finish the current year with the financial results indicated on the worksheet given below. Develop next year's income statement and ending

image text in transcribedimage text in transcribedimage text in transcribed

Key Graphics expects to finish the current year with the financial results indicated on the worksheet given below. Develop next year's income statement and ending balance sheet and statement of cash flows using that information and the following planning assumptions and facts. Note that due to an economic slowdown, Key Graphics is expect- ing a ten percent reduction in revenue. It is attempting to cut expenditures by an even greater percentage, resulting in a larger net profit. Work to the nearest thousand dollars. PLANNING ASSUMPTIONS AND FACTS Income Statement Items 1. Revenue declines by 10%. 2. The cost ratio will improve by 3%. 3. Spending in the Marketing Department will be held to 22% of revenue. 4. Engineering and Overhead expenses will be cut by 15%. 5. The combined state and federal income tax rate will be 40% 6. Interest on all borrowing will be 9 percent. 7. Interest expenses are based on 1/2 of the prior year's long-term debt and 1/2 of the current year's long-term debt.) Balance Sheet Items 1. Cash balances will remain constant. 2. The ACP will be 30 days. (Use ending balances.) 3. The inventory turnover ratio will be 4 times. (Use ending balances.) 4. Capital spending is expected to be $6.0M. The average depreciation life of the assets to be acquired is 5 years and straight-line depreciation is used. Old assets will deprecation by $1,700,000. 5. Accounts payable is expected to be 40% of inventory. 6. Accruals will rise by $10,000 7. $1,500,000 of dividends will be paid. There are no stock splits. 8. See next page for financial statements. Key Graphics Income Statement (5000) Revenues Less: Cost of Goods Sold Gross Margin Expenses Marketing Engineering Overhead Total Expenses EBIT Less: Interest Expense EBT Less: Income Tax EAT Key Graphics Balance Sheet ($000) ASSETS This Year Cash Accts, Receivable Inventory Current Assets Gross Fixed Assets Less: Acc. Deprec. Net Fixed Assets Total Assets Key Graphics expects to finish the current year with the financial results indicated on the worksheet given below. Develop next year's income statement and ending balance sheet and statement of cash flows using that information and the following planning assumptions and facts. Note that due to an economic slowdown, Key Graphics is expect- ing a ten percent reduction in revenue. It is attempting to cut expenditures by an even greater percentage, resulting in a larger net profit. Work to the nearest thousand dollars. PLANNING ASSUMPTIONS AND FACTS Income Statement Items 1. Revenue declines by 10%. 2. The cost ratio will improve by 3%. 3. Spending in the Marketing Department will be held to 22% of revenue. 4. Engineering and Overhead expenses will be cut by 15%. 5. The combined state and federal income tax rate will be 40% 6. Interest on all borrowing will be 9 percent. 7. Interest expenses are based on 1/2 of the prior year's long-term debt and 1/2 of the current year's long-term debt.) Balance Sheet Items 1. Cash balances will remain constant. 2. The ACP will be 30 days. (Use ending balances.) 3. The inventory turnover ratio will be 4 times. (Use ending balances.) 4. Capital spending is expected to be $6.0M. The average depreciation life of the assets to be acquired is 5 years and straight-line depreciation is used. Old assets will deprecation by $1,700,000. 5. Accounts payable is expected to be 40% of inventory. 6. Accruals will rise by $10,000 7. $1,500,000 of dividends will be paid. There are no stock splits. 8. See next page for financial statements. Key Graphics Income Statement (5000) Revenues Less: Cost of Goods Sold Gross Margin Expenses Marketing Engineering Overhead Total Expenses EBIT Less: Interest Expense EBT Less: Income Tax EAT Key Graphics Balance Sheet ($000) ASSETS This Year Cash Accts, Receivable Inventory Current Assets Gross Fixed Assets Less: Acc. Deprec. Net Fixed Assets Total Assets

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Biblical Finance Reflections On Money Wealth And Possessions

Authors: Mark Lloydbottom, Keith Tondeur

1st Edition

0956395023, 978-0956395023

More Books

Students also viewed these Finance questions

Question

What is liquidity, and what is the rationale for its measurement?

Answered: 1 week ago