Compute the additional financing needed

Use the percentage of sales forecasting method to compute the additional financing needed by LSS Inc., if sales are expected to increase from a current level of P 20,000,000 to a new level of Php 25,000,000 over the coming year. LSS expects earnings after taxes to equal Php 1,000,000 over the next year (2018). LSS intends to pay a Php 300,000 dividend next year. The current year balance sheet for LSS is as follows:

LSS INC. Balance Sheet as of December 31, 1018

Cash 1,000,000
c. Additional financing needed Accounts Payable 3,000,000
Accounts Receivable 1,500,000 Notes Payable 3,000,000
Inventories 6,000,000 Long term Debt 2,000,000
Net Fixed Assets 3,000,000 Stockholder’s Equity 3,500,000
TOTAL ASSETS 11,500,000 TOTAL LIABILITIES &EQUITY 11,500,000

All assets except “cash are expected to vary proportionately with sales. Of total liabilities and equity, only “accounts payable” is expected to vary proportionately with sales.

Solution:

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