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    Dividends and net income

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    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
    Current assets $890,000
    Net fixed assets 1,000,000
    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

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    Solution Preview


    Please see the response to your posting as below:
    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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    Solution shows answes of multiple choice questions.