Assets are 100 and expected to grow by 10 liabilities and ow

Assets are 100 and expected to grow by 10% liabilities and owners equity are 100 and expected to grow by .08 the plug for the first pro forma year is ?

a. Liability plus

b. Cash plug

c. Neither a nor b.

Solution

Liability Plug

in the First year Assets will become $110 ($100 * 1.10) and LIabilities and Equity will become $108 ($100 * 1.08). to reconcile the pro forma statement we have plug amount on liabilities side by $2. Thus Liability plug will occure