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Dividends and net income

Use the following information and the percent-of-sales method to answer questions.

Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales.

For consistency with the Answer selections provided, please round your forecast percentages to two decimals.)

Banner, Inc. Balance Sheet
December 31, 2004
Assets
Current assets $890,000
Net fixed assets 1,000,000
Total
$1,890,000
Liabilities and Owners' Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital) 360,000
Retained earnings 270,000
Common equity 630,000
Total $1,890,000

Banner's projected current assets for 2005 are:

(A) $1,000,000.
(B) $1,120,000
(C) $1,500,000
(D) $1,260,000.

Banner's projected accounts payable balance for 2005 is:

(A) $160,000.
(B) $120,000

(C) $200,000

(D) $300,000

Banner's projected retained earnings for 2005 are:

(A) $260,000.
(B) $280,000
(C) $340,000
(D) $350,000

Solution Preview

Hi,

Please see the response to your posting as below:
A)
Current assets as a percentage to sales = current assets at the end of 2004 /sales of 2004 =$890,000//1,600,000=0.55625 = ...

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