Question

Projected Spontaneous Liabilities

Smiley Corporation's current sales and partial balance sheet are shown below.

	This year
Sales		$	10,000
Balance Sheet: Liabilities
Accounts payable		$	2,000
Notes payable		$	2,000
Accruals		$	1,000
Total current liabilities		$	5,000
Long-term bonds		$	2,000
Total liabilities		$	7,000
Common stock		$	2,000
Retained earnings		$	2,500
Total common equity		$	4,500
Total liabilities & equity		$	11,500

Sales are expected to grow by 12% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

Spontaneous Liabilities, This Year = Accounts Payable + Accruals
Spontaneous Liabilities, This Year = $2,000 + $1,000
Spontaneous Liabilities, This Year = $3,000

Growth Rate = 12%

Increase in Spontaneous Liabilities = Spontaneous Liabilities, This Year * Growth Rate
Increase in Spontaneous Liabilities = $3,000 * 12%
Increase in Spontaneous Liabilities = $360

Spontaneous Liabilities, Next Year = Spontaneous Liabilities, This Year + Increase in Spontaneous Liabilities
Spontaneous Liabilities, Next Year = $3,000 + $360
Spontaneous Liabilities, Next Year = $3,360