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Question
Amalgamated Enterprises is planning to purchase some new equipment. With this new equipment, the company expects sales to increase from $8,000,000 to $10,000,000. A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue. The company knows that current assets, fixed assets, accounts payable, and accrued expenses increase in direct proportion with sales. The company's net profit margin on sales is 8%, and the company plans to pay 40% of its after-tax earnings in dividends. A copy of the company's current balance sheet is given below:Amalgamated Enterprises Balance Sheet
| Current assets | $3,000,000 |
| Fixed assets | 12,000,000 |
| Total assets | $15,000,000 |
| Accounts payable | $4,000,000 |
| Accrued expenses | 1,000,000 |
| Long-term debt | 3,000,000 |
| Common stock | 2,000,000 |
| Retained earnings | 5,000,000 |
| Total liabilities and net worth | $15,000,000 |
Prepare a pro forma balance sheet for Amalgamated for next year using the percent-of-sales method and the information provided above.
Answer
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