Problem:
Financing Deficit
Balance Sheet as of December 31, 2013
Cash...........................$ 180,000 Accounts payable.....................$ 360,000
Receivables....................360,000 Notes payable.............................156,000
Inventories.................... 720,000 Line of credit........................................0
Total current assets....$ 1,260,000 Accruals.....................................180,000
Fixed assets.................1,440,000 Total current liabilities............ $ 696,000
Common stock .......................1, 800, 000
Retained earnings....................... 204,000
Total assets.................... $2,700,000 Total liabilities and equity........$ 2,700,000
Income Statement for December 31, 2013
Suppose that in 2014 sales increase by 10% over 2013 sales and that 2014 dividends will increase to $112,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 13%, and assume that any new debt will be added at the end of the yea (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that all new debt will be in the form of a line of credit.