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Financial Statements for Dragon Peanuts

Here are the abbreviated financial statements for Dragon Peanuts.

Income Statement, 2003
Sales $2,000
Cost 1,500
Net income $500

Balance Sheet, Year end

2002 2003 2002 2003
Assets $2,500 $3,000 Debt $ 833 $1,000
Equity 1,667 2,000
Total $2,500 $3,000 Total $2,500 $3,000

If sales increase by 20% in 2004, and the company uses a strict percentage of sales planning model (meaning that all items on the income and balance sheet also increase by 20 percent), what must be the balancing item? What will be its value?

Solution Preview

From the given information for total assets, we can compute how much the total assets has been increased in 2003 as follows: -

$3,000 - $2,500 = 20%
$2,500

Therefore, if sales increase by 20% in 2004, then the total assets in 2004 ...

Solution Summary

This solution is comprised of a detailed explanation to answer what must be the balancing item and what will be its value.

$2.19