Question

Here are the abbreviated financial statements for Planner’s Peanuts: INCOME STATEMENT, 2019 Sales $ 11,000 Cost...

Here are the abbreviated financial statements for Planner’s Peanuts: INCOME STATEMENT, 2019 Sales $ 11,000 Cost 8,700 Net income $ 2,300 BALANCE SHEET, YEAR-END 2018 2019 2018 2019 Assets $ 10,500 $ 11,500 Debt $ 853 $ 1,000 Equity 9,647 10,500 Total $ 10,500 $ 11,500 Total $ 10,500 $ 11,500 a. If sales increase by 25% in 2020 and the company uses a strict percentage of sales planning model (meaning that all items on the income and balance sheet also increase by 25%), what must be the balancing item? b. What will be the value of this balancing item?

Homework Answers

Answer #1
a) If sales increase by 25% in 2020 and the company uses
a strict percentage of sales planning model, then
difference between the net income of 2020 and
increase in equity will be the balancing figure,
which also referred as "Dividends".
b) Net Income of 2020
= Net Income of 2019*(1+25%)
= $2300*1.25
= $2875
Equity of 2020
= Equity of 2019*(1+25%)
= $10500*1.25
= $13125
Increase in Equity
= Equity of 2020 - Equity of 2019
= $13125 - $10500
= $2625
Balancing Figure
= Dividends
= Net Income of 2020 - Increasein Equity
= $2875 - $2625
= $250
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