QN6

Financing Deficit

Garlington Technologies Inc.'s 2019 financial statements are shown below:

Income Statement for December 31, 2019

Sales$4,000,000Operating costs3,200,000 EBIT$ 800,000Interest120,000 Pre-tax earnings$ 680,000Taxes (25%)170,000Net income510,000Dividends$ 190,000

Balance Sheet as of December 31, 2019

Cash$ 160,000 Accounts payable$ 360,000Receivables360,000 Line of credit0Inventories720,000 Accruals200,000 Total CA$1,240,000 Total CL$ 560,000Fixed assets4,000,000 Long-term bonds1,000,000 Total Assets$5,240,000 Common stock1,100,000 RE2,580,000 Total L&E$5,240,000

Suppose that in 2020 sales increase to $4.4 million and that 2020 dividends will increase to $140,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 9%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.

Garlington Technologies Inc. Pro Forma Income Statement December 31, 2020 Sales Operating costs EBIT Interest Pre-tax earnings Taxes (25\\%) Net income Dividends: Addition to RE: Garlington Technologies Inc