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    Computation of AFN

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    Problem 12-9
    Financing Deficit
    Garlington Technologies Inc.'s 2013 financial statements are shown below:
    Balance Sheet as of December 31, 2013
    Cash $ 180,000 Accounts payable $ 360,000
    Receivables 360,000 Notes payable 156,000
    Inventories 720,000 Line of credit 0
    Total current assets $1,260,000 Accruals 180,000
    Fixed assets 1,440,000 Total current liabilities $ 696,000
    Common stock 1,800,000
    Retained earnings 204,000
    Total assets $2,700,000 Total liabilities and equity $2,700,000
    Income Statement for December 31, 2013
    Sales $3,600,000
    Operating costs 3,279,720
    EBIT $ 320,280
    Interest 18,280
    Pre-tax earnings $ 302,000
    Taxes (40%) 120,800
    Net income 181,200
    Dividends $ 108,000
    Suppose that in 2014 sales increase by 20% over 2013 sales and that 2014 dividends will increase to $202,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the AFN will be in the of form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

    Garlington Technologies Inc.
    Pro Forma Income Statement
    December 31, 2014
    Sales $
    Operating costs $
    EBIT $
    Interest $
    Pre-tax earnings $
    Taxes (40%) $
    Net income $
    Dividends: $
    Addition to RE: $

    Garlington Technologies Inc.
    Pro Forma Balance Statement
    December 31, 2014
    Cash $
    Receivables $
    Inventories $
    Total current assets $
    Fixed assets $
    Total assets $
    Accounts payable $
    Notes payable $
    Accruals $
    Total current liabilities $
    Common stock $
    Retained earnings $
    Total liabilities and equity $

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    https://brainmass.com/business/accounting/computation-of-afn-563103

    Solution Summary

    The solution helps in computing AFN for Garlington Technologies.

    $2.19