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Case 5Popâs Recycling Company Use the Income Statement and Balance Sheet to answer the following questions below Income Statement

Case 5-Pop’s 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. Pop’s 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 owner’s 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 Pop’s a loan of the amount you calculated in part 3?

 

Aug 25 2020 View more View Less

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