Nautical Company

Question

The Nautical Co. Ltd. expects sales of $2.4 mill this year and the same amount the following year. All sales are on credit and are spread evenly throughout the year. On the basis of the following information, prepare a forecast income statement and balance sheet for year ended December 31st, 2017.

• Cash : Minimum of 4 percent of annual sales

• Accounts Receivable : 60 day average collection based on annual sales.

• Inventories : Turnover of eight times a year.

• Net Fixed Assets : $500,000 now. Capital expenditure equal to depreciation.

• Accounts Payable : One month’s purchases.

• Accrued expenses : 3 percent of sales.

• Bank borrowing : $50,000 now. Can borrow as much as $250,000.

• Long Term Debt : $300,000 now; payable balance $75,000 at year end.

• Common Stock : $100,000. No addition planned.

• Retained Earnings : $500,000 now ( the opening balance ).

• Net profit margin : 8% of sales

• Dividends : None

• Cost of Goods Sold : 60% of sales.

• Purchases : 50% of cost of goods sold.

• Income Taxes : 50% of before tax profits.

The income statement is given as follows:

Sales 2,400,000

Less Cost of Goods Sold (2,400,000*60%) 1,440,000

Gross Profit 960,000

Less Expenses (960,000 – 384,000) 576,000

Profit Before Taxes (192,000/50%) 384,000

Less Taxes (384,000*50%) 192,000

Net Income (8%*2,400,000) $192,000

Less Dividends 0

Increase in Retained Earnings $192,000

_________

The balance sheet is given as follows:

Assets Liabilities

Current Assets Current Liabilities

Cash (2,400,000*4%) 96,000 Accounts Payable (1,440,000/12*50%) 60,000

Accounts Receivables [(2,400,000/(360/60)] 400,000 Accrued Expenses (2,400,000*3%) 72,000

Inventory [(1,440,000/8)] 180,000 Bank Borrowing (Balance) 27,000

Total Current Assets 676,000 Total Current Liabilities 159,000

Net Fixed Assets 500,000 Long Term Debt (300,000 – 75,000) 225,000

Stockholder's Equity...