Forecasted Balance Sheet and Income Statement
Lorien Company wishes to prepare a forecasted income statement and a forecasted balance sheet for 2009. Lorien’s balance sheet and income statement for 2008 follow.
|
Balance Sheet |
2008 |
|
Cash |
$ 40 |
|
Other current assets |
350 |
|
Property, plant, and equipment, net |
1,000 |
|
Total assets |
$1,390 |
|
Accounts payable |
$ 100 |
|
Bank loans payable |
1,000 |
|
Paid in capital |
100 |
|
Retained earnings |
190 |
|
Total liabilities and stockholders’ equity |
$1,390 |
|
Income Statement |
2008 |
|
Sales |
$1,000 |
|
Cost of goods sold |
350 |
|
Gross profit |
$ 650 |
|
Depreciation expense |
200 |
|
Other operating expenses |
250 |
|
Operating profit |
$ 200 |
|
Interest expense |
120 |
|
Income before taxes |
$ 80 |
|
Income taxes |
20 |
|
Net income |
$ 60 |
In addition, Lorien has assembled the following forecasted information regarding 2009:
(a) Sales are expected to increase to $1,200.
(b) Lorien does not expect to buy any new property, plant, and equipment during 2009.
(c) Because of adverse banking conditions, Lorien does not expect to receive any new bank loans in 2009.
(d) Lorien plans to pay cash dividends of $15 in 2009.
Instructions:
1. Prepare a forecasted balance sheet and a forecasted income statement for 2009. Clearly state what assumptions you make.
2. If you construct your forecasted balance sheet in (1) correctly, total forecasted paid in capital for 2009 should be negative. Is this possible? Explain.