​A Firm with Sales of $5,000 Has the Following Balance $\text { Assets, Liabilities and Equity as of } \mathrm{XX} / \mathrm{XX} / \mathrm{XX}$

question 19

Essay

​A firm with sales of $5,000 has the following balance sheet:
​ $\text { Assets, Liabilities and Equity as of } \mathrm{XX} / \mathrm{XX} / \mathrm{XX}$
$\begin{array}{lclc}\text { Assets }&&\text { Liabilities and Equity }\\\hline\text { Accounts receivable } & \$ 1,300 & \text { Accounts payable } & \$ 1,200 \\\text { Inventory } & 1,600 & \text { Long-term debt } & 2,500 \\\text { Plant } & 1,700 & \text { Equity } & 900 \\& \$ 4.600 & & \$ 4,600\end{array}$
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The firm earns 5 percent on sales and expects sales to rise to $5,500. The increase may require additional financing. Regression analysis is used to estimate accounts receivable, inventory, and trade accounts (payables). These estimated equations are accounts receivable $= \$ 300 + 0.2$ Sales
inventory $= \$ 400 + 0.3$ Sales
accounts payable $= \$ 200 + 0.3$ Sales ​
Management expects to distribute 20% of earnings.
a. Determine the new balance sheet entries for sales of $5,500.
b. the firm need external financing to achieve sales of $5,500?
c. Construct the pro forma balance sheet for sales of $5,500. Any new financing should be obtained by issuing new long‑term debt. Any excess funds should be held in cash.

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Definitions:

Substitute Physician

A medical doctor who temporarily fills in for another physician, often referred to as a locum tenens.

Locum Tenens

A person who temporarily fulfills the duties of another; specifically, a physician or clergyman acting temporarily for another.

Res Ipsa Loquitur

Latin, meaning “the thing speaks for itself,” which is also known as the doctrine of common knowledge.

Respondeat Superior

Latin, meaning “let the master answer,” a doctrine under which an employer is legally liable for the acts of his or her employees, if such acts were performed within the scope of the employee’s duties.