Stevens Textile's 2004 financial statements are shown below. Stevens Textile: Balance Sheet as of December 31, 2004 (Thousands of Dollars)
Suppose 2005 sales are projected to increase by 15 percent over 2004 sales. Determine the additional funds needed. Assume that the company was operating at full capacity in 2004, 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, 2005. Use an interest rate of 10 percent on the balance of debt at the beginning of the year to compute interest (cash pays no interest). Use the pro forma income statement to determine the addition to retained earnings.
