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ST3. Use the percentage of sales forecasting method to compute the additional financ- ing needed by Lambrechts Specialty Shops, Inc. (LSS), if sales are expected to increase from a current level of $20 million to a new level of $25 million over the coming year. LSS expects earnings after taxes to equal $1 million over the next year (2014). LSS intends to pay a $300,000 dividend next year. The current year balance sheet for LSS is as follows:

Lambrechts Specialty Shops, Inc. Balance Sheet as of December 31, 2013

cash 1,000,000 Accounts Payable 3,000,000
accounts receivable 1,500,000 Notes payable 3,000,000
inventories 6,000,000 Long term debt 2,000,000
net fixed assets 3,000,000 Stockholders' equity 3,500,000
Total assets 11,500,000 Total liabilities and equity 11,500,000

All assets, except “cash,” are expected to vary proportionately with sales. Of total liabilities and equity, only “accounts payable” is expected to vary proportionately with sales.

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Sixta Kovacek
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Murphy had sales for the year ended December​ 31, 2016, of ​$51.47 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends.​ Thus, Murphy generates no funds from its earnings that can be used to expand its operations.​ (Assume that depreciation expense is equal to the cost of replacing​ worn-out assets.). Hint​: Make sure to round all intermediate calculations to at least five decimal places. a. If Murphy anticipates sales of ​$99.05 million during the coming​ year, develop a pro forma balance sheet for the firm for December​ 31, 2017. Assume that current assets are a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percentage of sales. Use notes payable as a balancing entry. b. How much new financing will Murphy need next​ year? c. What are the limitations of the​ percent-of-sales forecast​ method? Discuss briefly. a. If Murphy anticipates sales of ​$99.05 million during the coming​ year, develop a pro forma balance sheet for the firm for December​ 31, 2017. Assume that current assets are a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percentage of sales. Use notes payable as a balancing entry.  ​(Round to the nearest​ dollar.)

partial credit,P17-6 (similar to)

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​(Forecasting financing​ needs) The current balance sheet of the Murphy​ Forklifts, Inc., is as​ follows:

LOADING...

. Murphy had sales for the year ended December​ 31, 2016, of

​$51.4751.47

million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends.​ Thus, Murphy generates no funds from its earnings that can be used to expand its operations.​ (Assume that depreciation expense is equal to the cost of replacing​ worn-out assets.).

Hint​:

Make sure to round all intermediate calculations to at least five decimal places.a. If Murphy anticipates sales of

​$99.0599.05

million during the coming​ year, develop a pro forma balance sheet for the firm for December​ 31, 2017. Assume that current assets are a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percentage of sales. Use notes payable as a balancing entry.

b. How much new financing will Murphy need next​ year?

c. What are the limitations of the​ percent-of-sales forecast​ method? Discuss briefly.

a. If Murphy anticipates sales of

​$99.0599.05

million during the coming​ year, develop a pro forma balance sheet for the firm for December​ 31, 2017. Assume that current assets are a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percentage of sales. Use notes payable as a balancing entry.  ​(Round to the nearest​ dollar.)

Murphy​ Forklifts, Inc., Balance​ Sheet, December​ 31, 2016​ ($ millions)

Current assets

​$9.999.99

Accounts payable

​$5.995.99

Net fixed assets

14.4714.47

Notes payable

0.000.00

Total

​$24.4624.46

Bonds payable

10.1210.12

Common equity

8.358.35

Total

​$24.4624.46

Data Table

Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It
wishes to analyze expected performance and financing needs for 2017, which is
2 years ahead. Given the following information, respond to parts a and b.
(1) The percents of sales for items that vary directly with sales are as follows:
Accounts receivable, 12%
Inventory, 18%
Accounts payable, 14%
Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain
unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2016, and equipment
costing $850,000 will be purchased in 2017. Total depreciation in 2016 is
forecast as $290,000, and in 2017 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2017.
(6) No sale or retirement of long-term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2016 and $12 million in 2017.
(10) The December 31, 2015, balance sheet follows.

Peabody & Peabody Balance Sheet December 31, 2015

Assets Liabilities and stockholders’ equity
Cash $ 400 Accounts payable $1,400
Marketable securities 200 Accruals 400
Accounts receivable 1,200 Other current liabilities 80
Inventories 1,800 Total current liabilities $1,880
Total current assets $3,600 Long-term debt 2,000
Net fixed assets 4,000 Total liabilities 3,880
Total assets $7,600 Common equity 3,720
Total liabilities and
stockholders’ equity $7,600

a. Prepare a pro forma balance sheet dated December 31, 2017.
b. Discuss the financing changes suggested by the statement prepared in part a.

24. In 2012, the JCrew Company's sales were $15.0 million. Its balance sheet at year end 2012 is shown below. JCrew's 2013 sales are expected to be $21 million. Earnings after tax is expected to be 6.0% of sales, and annual dividends of $575,000 are expected to be paid in 2013. The company presently has excess plant and equipment capacity. As a result, assume that the net fixed asset figure on the balance sheet will remain constant for 2013. Assuming that the ratios of assets (except fixed assets, net) to sales and accounts payable to sales in 2012 remain the same in 2013, calculate the total amount, i.e., one number, of external financing required for 2013, using the percentage of sales method.

JCrew Co. Balance Sheet
(December 31, 2012)($ millions)
Current assets: Current liabilities:
Cash $0.5 Accts. payable $0.7
Accts. Rec. 1.5 Notes payable 0.8
Inventory 2.5 Long-term debt 2.3
Fixed assets, net 1.5 Stockholders' equity 2.2
Total Assets $6.0 Total Liabilities and Equity $6.0 (Points : 3.5)

A. $750,000
B. $220,000
C. $835,000
D. None of the above

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