Amalgamated Enterprises Is Planning to Purchase Some New Equipment

question 68

Essay

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 ordinary shares 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
Ordinary shares 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.

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Definitions:

Reaction Structure

A diagram or representation that shows how the atoms or molecules in a chemical reaction are rearranged to form products.

Organic Product

A compound containing carbon that is produced as a result of an organic chemical reaction.

Transformation Reagent

A chemical used to bring about a structural change in a molecule during synthesis.

Major Organic Product

The main substance produced in the greatest quantity from an organic chemical reaction.