Tablon Inc. is a wholly owned subsidiary of Marbel Co. The philosophy of Marbel’s management is to allow the subsidiaries to operate as independent units. Corporate control is exercised through the establishment of minimum objectives for each subsidiary, accompanied by substantial rewards for success and penalties for failure. The time period for performance review is long enough for competent managers to display their abilities.

Each quarter, the subsidiary is required to submit financial statements. The statements are accompanied by a letter from the subsidiary president explaining the results to date, a forecast for the remainder of the year, and the actions to be taken to achieve the objectives if the forecast indicates that the objectives will not be met. Marbel management, in conjunction with Tablon management, had set the objectives listed below for the year ending May 31, 2018. These objectives are similar to those set in previous years.

• Sales growth of 20%

• Return on stockholders’ equity of 15%

• A long-term debt-to-equity ratio of not more than 1.0

• Payment of a cash dividend of 50% of net income, with a minimum payment of at least $400,000

Tablon’s controller has just completed the financial statements for the six months ended November 30, 2017, and the forecast for the year ending May 31, 2018. The statements follow. After a cursory glance at the financial statements, Tablon’s president concluded that not all objectives would be met. At a staff meeting of the Tablon management, the president asked the controller to review the projected results and recommend possible actions that could be taken during the remainder of the year so that Tablon would be more likely to meet the objectives.

Required
1. Calculate the projected results for each of the four objectives established for Tablon Inc. State which results will not meet the objectives by year-end.
2. From the data presented, identify the factors that seem to contribute to the failure of Tablon Inc. to meet all of its objectives.
3. Explain the possible actions that the controller could recommend in response to the president's request.

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Tablon hc. Income Statement (thousands omitted) Six Months Ended November 30, 2017 Forecast for Year Ending May 31 2018 Year Ended May 31 2017 Sales Cost of goods sold Selling expenses Administrative expenses and interest Income taxes (40%) $25,000 $13,000 5,000 4,000 1,200 $15,000 $ 8,000 $30,000 $16,000 3,500 2,500 5,000 Total expenses and taxes Net income Dividends declared and paid $14,400 $ 600 $28,800 $1,200 $1,800 Income retained $ 1,200 $ 600 $ 600 Tablon Inc. Statement of Financial Position (thousands omitted) May 31, 2017 November 30, 2017 Forecast for May 31, 2018 Assets 400 4,100 7,000 6,500 $18,000 $ 500 $ 500 7,100 8,600 7,300 Accounts receivable (net) Plant and equipment net) 7,000 Total assets Liabilities and Equities Accounts payable Accrued taxes Long-tem borrowing Common stock Retained earnings 3,000 300 6,000 5,000 3,700 $18,000 4,000 200 4,000 200 OouD 5,000 1,30 $23,500 Total liabilities and equities $22,500