Stevens Textile: Balance Sheet as of December 31, 2006 (Thousands of Dollars)
Cash	$ 1,080		Accounts Payable	$ 4,320
Receivables	6,480		Accruals	2,880
Inventories	9,000		Notes payable	2,100
Total current assets	$16,560		Total current liabilities	$ 9,300
Net fixed assets	12,600		Mortgage bonds	3,500
			Common stock	3,500
			Retained earnings	12,860
Total assets	$29,160		Total liabilities and equity	$29,160

Stevens Textile: Income Statement as of December 31, 2006 (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 2007 sales are projected to increase by 12.5 percent over 2006 sales. Determine the additional funds needed. Assume that the company was operating with plenty of excess capacity in 2006, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Use the percent of sales method to develop a pro forma balance sheet and income statement for December 31, 2007. Use an interest rate of 8 percent on the balance of debt at the beginning of the year to compute interest (cash pays no interest). Use the pro forma income statements to determine the addition to retained earnings.