Forecasted Balance Sheet, Income Statement, and Statement of Cash Flows
|
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 income taxes |
$80 |
|
Income taxes |
20 |
|
Net income |
$60 |
In addition, Lorien has assembled the following forecasted information for 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, a forecasted income statement, and a forecasted statement of cash flows for 2009. Clearly state what assumptions you make. Use the indirect method for reporting cash from operating activities.
2. If you have constructed your forecasted cash flow statement correctly, you will see that Lorien plans to distribute cash to shareholders through two different means in 2009. Which of these methods involves distributing an equal amount of cash for each share owned? Which of these methods channels the cash to shareholders who are the least optimistic about the prospects of the company?