Home / Questions / Case 5Popâs Recycling Company Use the Income Statement and Balance Sheet to answer the fo...
Case 5-Popâs Recycling Company
Use the Income Statement and Balance Sheet to answer the following questions below:
|
Income Statement |
|||||
|
1987 |
1988 |
1989 |
1990 |
1991 |
|
|
Sales |
$8,200,000 |
$8,700,000 |
$9,500,000 |
$11,000,000 |
$12,000,000 |
|
Profit after Tax |
$410,000 |
$440,000 |
$332,000 |
$330,000 |
$336,000 |
|
Balance Sheet |
1987 |
1988 |
1989 |
1990 |
1991 |
|
Cash |
$290,100 |
$239,266 |
$229,500 |
$215,500 |
$205,100 |
|
Accounts Receivable |
418,200 |
488,070 |
532,950 |
425,000 |
634,742 |
|
Inventory |
964,500 |
1,171,036 |
1,489,525 |
2,598,693 |
3,220,087 |
|
Total Current Assets |
$1,672,800 |
$1,898,372 |
$2,251,975 |
$3,239,193 |
$4,059,929 |
|
Net Fixed Assets |
2,509,200 |
2,786,061 |
3,150,513 |
3,138,540 |
3,452,383 |
|
Total Assets |
$4,182,000 |
$4,684,433 |
$5,402,488 |
$6,377,733 |
$7,512,312 |
|
Accounts Payable |
$385,020 |
$408,476 |
$647,869 |
$1,140,650 |
$1,550,175 |
|
Accrued Wages & Taxes |
510,480 |
541,098 |
581,400 |
610,470 |
673,130 |
|
Notes payable - bank |
150,000 |
78,000 |
75,000 |
75,000 |
75,000 |
|
Total current liabilities |
$1,045,500 |
$1,027,574 |
$1,304,269 |
$1,826,120 |
$2,298,305 |
|
Long term debt |
585,480 |
665,839 |
775,200 |
775,200 |
1,101,600 |
|
Owner's Equity |
1,020,408 |
1,020,408 |
1,020,408 |
1,143,801 |
1,143,795 |
|
Earned Surplus |
1,530,612 |
1,970,612 |
2,302,611 |
2,632,612 |
2,968,612 |
|
Total Liabilities & Equity |
$4,182,000 |
$4,684,433 |
$5,402,488 |
$6,377,733 |
$7,512,312 |
Question 3. Determine the amount of external borrowing by the company, if any.
-This is probably the most important question of the case. You will need to prepare a forecasted net income for the 1992 income statement and continue to prepare the 1992 balance sheet. You will be required to use a number of assumptions, please list the assumptions made. The sales forecast is given as $14.5 million. Use this number to forecast the net income. Popâs has not historically paid dividends so your calculated net income will represent the increase in earned surplus on the balance sheet (earned surplus = retained earnings). After you calculate the new retained earnings, go down the balance sheet and forecast each number (cash, accounts receivable, inventory, etc.). Keep the dollar balances for notes payable, long term debt, and ownerâs equity (stock) at their 1991 balances to start. Add your total assets and compare them to your total liabilities and equity. (The total assets should exceeded the total liabilities and equity and the difference between them represents the amount of external borrowing.)
Question 10. How should the bank proceed?
- If you were the banker, would you give Popâs a loan of the amount you calculated in part 3?
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