Question

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 10 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets and accounts payable increase spontaneously with sales.

RETRO MACHINE, INC. 2016 Income Statement
Sales				$	744,050
Costs					578,850
Other expenses					15,550
Earnings before interest and taxes				$	149,650
Interest paid					11,300
Taxable income				$	138,350
Taxes (35%)					48,423
Net income				$	89,928
Dividends	$	26,989
Addition to retained earnings		62,939

RETRO MACHINE, INC. Balance Sheet as of December 31, 2016
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	22,990		Accounts payable	$	61,390
Accounts receivable		36,710		Notes payable		15,420
Inventory		78,280		Total	$	76,810
Total	$	137,980		Long-term debt	$	142,100
Fixed assets				Owners’ equity
Net plant and equipment	$	371,890		Common stock and paid-in surplus	$	127,000
				Accumulated retained earnings		163,960
				Total	$	290,960
Total assets	$	509,870		Total liabilities and owners’ equity	$	509,870

In 2016, the firm operated at 70 percent of capacity. Construct the pro forma income statement and balance sheet for the company. Assume that the company cannot sell fixed assets. This implies that asset utilization may remain less than 100 percent next year as well. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Pro Forma Income Statement
Sales	$
Costs
Other expenses
EBIT	$
Interest
Taxable income	$
Taxes (35%)
Net income	$

Pro Forma Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$			Accounts payable	$
Accounts receivable				Notes payable
Inventory				Total	$
Total	$			Long-term debt	$
Fixed assets				Owners’ equity
Net plant and equipment	$			Common stock and paid-in surplus	$
				Accumulated retained earnings
				Total	$
Total assets	$			Total liabilities and owners’ equity	$

What is the EFN? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32. A negative answer should be indicated by a minus sign.)
  
EFN           $

Answer 1

The proforma Income Statement and Balance sheet are as shown below for 2017:

Sales	818455
Costs	636735
Other Expenses	17105
EBIT	164615
Interest paid	11130
Taxable income	153485
Taxes (35%)	53719.8
Net Income	99765.25
Dividends	29941
Addn to retained earnings	69824

Assets		Liabilties and Owner's Equity
Current Asets		Current liabilties
Cash	25289	Accounts payable	68123
Accounts receivable	40381	Notes payable	15420
Inventory	86108	Total	83543
Total	151778	Long term debt	142100
Fixed assets		Owner's equity
Net Plant.equipment	371890	Common stock	127000
		Retained earnings	233784
Total Assets	523668	Total	586427
		EFN	-62759

EFN =-$62,759 (Negative)