At yearend 2016 Wallace Landscapings total assets were 20 mi

At year-end 2016, Wallace Landscaping’s total assets were $2.0 million, and its accounts payable were $345,000. Sales, which in 2016 were $2.2 million, are expected to increase by 20% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $375,000 in 2016, and retained earnings were $240,000. Wallace has arranged to sell $70,000 of new common stock in 2017 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 8%, and 45% of earnings will be paid out as dividends.

a) What was Wallace\'s total long-term debt in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.

b) What were Wallace\'s total liabilities in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.

c) How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar.

Solution

Sales, Account payables and total assets will grow by 20% in 2017 as they are directly proportional Sales in 2017 120%X2200000 2640000 Total assets in 2017 120%X2000000 2400000 Account payales in 2017 120%X345000 414000 Net profit in 2017 8%Xsales 8%*2640000 211200 Dividend in 2017 45%Xnet profit 95040 Total Assets=Total liabilities + equity total assets=account payables+common stock+retained earnings+debt 2000000=345000+375000+240000+debt Debt in 2016 = 1040000 Similarly, debt in 2017 = 1324840 Year 2016 Year 2017 Year 2016 Year 2017 Total assets 2000000 2400000 sales 2200000 2640000 Net profit 176000 211200 Dividend 79200 95040 Account payables 345000 414000 Common stock 375000 305000 Retained earnings 240000 356160 Total Liabilities 2000000 2400000 Debt 1040000 1324840