1. Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. The firm's investment in inventory in the current year is $5,890,200. What is the projection for next year's inventory?
a. $4,526,600
b. $7,657,260
c. $6,981,250
2. Which of the following is a spontaneous source of financing?
a. common stock
b. paid-in-capital
c. accrued expenses
3. MDX Sales Corp. is expecting a 10% increase in sales next year. MDX has an inventory balance of $1,000,000 and uses the percent of sales forecasting method. Which of the following could explain why the inventory forecast of $1,100,000 might be too high?
a. A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales.
b. The company is going to change its depreciation method in the coming year.
c. The growth in sales could be as high as 15%.