Q. No. 1

Max Marks 06

FORCASTEING FINANCIAL STATEMENT

ABC Corporations 2015 financial statements are shown below:

Balance Sheet as of December 31, 2015 (Thousands of Dollars)

Cash	$ 2,080	Accounts payable	$ 5,320
Receivables	6,480	Accruals	2,880
Inventories	9,000	Notes payable	2,100
Total current assets	$ 17,560	Total current liabilities	$ 9,300
Net fixed assets	14,600	Mortgage bonds	3,500
		Common stock	5,500
		Retain earnings	12,860
Total Assets	$ 32,160	Total liabilities and equity	$ 32,160

Income Statement for December 31, 2015 (Thousands of Dollars)

Sales	$36,000
Operating Costs	32,440
Earnings Before Interest and Taxes	3,560
Interest	460
Earnings Before Taxes	3,100
Taxes (40%)	1,240
Net Income	1,860
Dividends (45%)	837
Addition to Retained Earnings	1,023

Suppose 2016 sales are projected to increase by 15% over 2015 sales. Use the forecasted financial statement method to forecast an income statement for December 31, 2016. The interest rate on notes payable is 10% and mortgage bonds is 12%, and cash earns no interest income. Assume that all additional debt is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retain earnings also.

Required

Forecast an income statement for December 31^st, 2016.