30.03.2023 - 16:05

The balance sheet of the Thompson Trucking Company (TTC) follows Current assets $9.65 Account Payable $4.78 Net fixed assets 15.16 Note payable 0.00 Total $24.81 Bond Payable 9.95 Common equity 10

The balance sheet of the Thompson Trucking Company (TTC) follows

Current assets $9.65 Account Payable $4.78
Net fixed assets 15.16 Note payable 0.00
Total $24.81 Bond Payable 9.95
Common equity 10.08
Tatal $24.81

TTC had sales for the year ended12/31/13 of $49.49 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends. Thus, TTC generates no funds from its earnings that can be used to expand its operations.

a. If TTC anticipates sales of $78.16million during the coming year, develop a pro forma balance sheet for the firm for 12/31/14. Assume that current assets vary as a percent of sales, net fixed assets remain unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.

b. How much ‘new’ financing will TTC need next year?

c. What limitation does the percent-of-sales forecast method suffer from Discuss briefly?

d. If TTC anticipates sales of $78.16 million during the coming year, develop a pro forma balance sheet for the firm for 12/31/14. Assume that current assets vary as a percent of sales, net fixed assets remain unchanged, and accounts payable vary as a percent of sales.

Answers (1)
  • Bondr
    April 2, 2023 в 10:08

    a. To develop a pro forma balance sheet for TTC for 12/31/14, we need to estimate the changes in current assets and accounts payable as a percentage of sales. Assuming that current assets and accounts payable vary as a percentage of sales, we can calculate the estimated amounts for each of these accounts using the following formula:

    Current assets = Sales x Current asset percentage Accounts payable = Sales x Accounts payable percentage

    Using the data given in the table and the assumption that net fixed assets remain unchanged, we can calculate the pro forma balance sheet for TTC for 12/31/14 as follows:

    <table class='wikitable' border='1'> <tr class='odd'> <td>Current assets</td> <td>$15.15</td> <td> </td> <td>Account Payable</td> <td>$7.50</td> </tr> <tr> <td>Net fixed assets</td> <td>15.16</td> <td> </td> <td>Note payable</td> <td>3.06</td> </tr> <tr class='odd'> <td>Total </td> <td>$30.31</td> <td> </td> <td>Bond Payable</td> <td>9.95</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td>Common equity</td> <td>10.08</td> </tr> <tr class='odd'> <td> </td> <td> </td> <td> </td> <td>Total</td> <td>$30.31</td> </tr> </table>

    The balancing entry is notes payable, which is calculated as follows:

    Notes payable = Total assets - (Accounts payable + Bond payable + Common equity) Notes payable = $30.31 million - ($7.50 million + $9.95 million + $10.08 million) Notes payable = $2.78 million

    Therefore, the pro forma balance sheet for TTC for 12/31/14 is as shown in the table above.

    b. To determine how much new financing TTC will need next year, we need to calculate the increase in total assets from the pro forma balance sheet. The increase in total assets is:

    Increase in total assets = Pro forma total assets - Current total assets Increase in total assets = $30.31 million - $24.81 million Increase in total assets = $5.50 million

    Since TTC generates no funds from its earnings that can be used to expand its operations, it will need to obtain this $5.50 million in new financing to support the projected increase in sales.

    c. The percent-of-sales forecast method assumes that all balance sheet accounts will vary proportionally with sales. However, this assumption may not always hold true in practice, and the forecasted balance sheet may not accurately reflect the actual financial position of the company. For example, changes in economic conditions, technological advancements, or other factors may cause some accounts to vary differently than others, leading to errors in the forecasted balance sheet.

    d. The pro forma balance sheet for TTC for 12/31/14, assuming sales of $78.16 million during the coming year and using the assumptions described in part (a), is shown in the table below:

    <table class='wikitable' border='1'> <tr class='odd'> <td>Current assets</td> <
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