Phillips Corporation Essay
Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): |
Income Statement | Balance Sheet | Sales | $17,000 | Assets | $13,127 | Debt | $7,541 | Costs | 11,730 | | | Equity | 5,586 | Net income | -------------------------------------------------
$5,270 | Total | -------------------------------------------------
$13,127 | Total | -------------------------------------------------
$13,127 | | Phillips has predicted a sales increase of 11 percent. It has predicted that every item on the balance sheet will increase by 11 percent as well. Create the pro forma statements and reconcile them. (Do not include the dollar signs ($). …show more content…
Round your answers to the nearest whole dollar amount. (e.g., 32)) |
Pro Forma Income Statement | Pro Forma Balance Sheet | Sales | $ | Assets | $ | Debt | $ | Costs | | | | Equity | | Net income | -------------------------------------------------
$ | Total | -------------------------------------------------
$ | Total | -------------------------------------------------
$ | |
The plug variable here is dividends paid in the amount of $.
|
Explanation: It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 11 percent, equity must be: |
Equity = Total liabilities and equity − Debt | Equity = $14,571 − 8,371 | Equity = $6,200 |
Equity increased by: |
Equity increase = $6,200 − 5,586 | Equity increase = $614 |
Net income is $5,850 but equity only increased by $614; therefore, a dividend of: |
Dividend = $5,850 − 614 | Dividend = $5,236 |
must have been paid. Dividends paid is the plug variable. |
Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): |
Income Statement | Balance Sheet | Sales | $19,000 | Assets | $9,000 | Debt | $5,700 | Costs | 14,100 | | | Equity | 3,300 | Net income | -------------------------------------------------
$4,900 | Total | -------------------------------------------------
$9,000 | Total |
-------------------------------------------------
$9,000 | | Phillips has predicted a sales increase of 10 percent. It has predicted that every item on the balance sheet will increase by 10 percent as well. |
Required: | Calculate the dividend paid. (Do not round your intermediate calculations.) |
| $5,050 | | $5,043 | | $15,890 | → | $5,060 | | $5,047 |
It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 10 percent, the pro forma income statement and balance sheet will look like this: |
Pro forma income statement | Pro forma balance sheet | Sales | $20,900 | Assets | $9,900 | Debt | $6,270 | Costs | 15,510 | | | Equity | 3,630 | Net income | -------------------------------------------------
$5,390 | Total | -------------------------------------------------
$9,900 | Total | -------------------------------------------------
$9,900 | | In order for the balance sheet to balance, equity must be: |
Equity = Total liabilities and equity – Debt | Equity = $9,900 – 6,270 | Equity = $3,630 |
Equity increased by: |
Equity increase = $3,630 – 3,300 | Equity increase = $330 |
Net income is $5,390 but equity only increased by $330; therefore, a dividend of: |
Dividend = $5,390 – 330 | Dividend = $5,060 |
must have been paid. Dividends paid is the plug variable. |
It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 10 percent, the pro forma income statement and balance sheet will look like this: |
Financial planning accomplishes which of the following for a firm?
I. determination of asset requirements
II. development of plans to contend with unexpected events
III. establishment of priorities
IV. analysis of funding options
| I, II, and III only | | I, III, and IV only | | I and III only | → | I, II, III, and IV | | II and IV only |
You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process?
| fixed assets | | sales forecast | | external financing need | | projected net income | | current expenses |
Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?
| capacity utilization policy | → | dividend policy | | capital budgeting policy | | capital structure policy | | net working capital policy |
Fresno Salads has current sales of $4,900 and a profit margin of 6.5 percent. The firm estimates that sales will increase by 5 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income?
| $338.70 | | $303.33 | | $341.10 | | $334.43 | | $327.18 |
Net income = $4,900 × .065 × (1 + .05) = $334.43
You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan?
I. How much net working capital will be needed?
II. Will additional fixed assets be required?
III. Will dividends be paid to shareholders?
IV. How much new debt must be obtained?
| I and IV only | | I, III, and IV only | | II and III only | | II, III, and IV only | → | I, II, III, and IV |
Financial planning:
| is a process that firms employ only when major changes to a firm's operations are anticipated. | → | considers multiple options and scenarios for the next two to five years. | | is a process that firms undergo once every five years. | | provides minimal benefits for firms that are highly responsive to economic changes. | | focuses solely on the short-term outlook for a firm. |
Income Statement | Balance Sheet | Sales | $17,000 | Assets | $13,127 | Debt | $7,541 | Costs | 11,730 | | | Equity | 5,586 | Net income | -------------------------------------------------
$5,270 | Total | -------------------------------------------------
$13,127 | Total | -------------------------------------------------
$13,127 | | Phillips has predicted a sales increase of 11 percent. It has predicted that every item on the balance sheet will increase by 11 percent as well. Create the pro forma statements and reconcile them. (Do not include the dollar signs ($). …show more content…
Round your answers to the nearest whole dollar amount. (e.g., 32)) |
Pro Forma Income Statement | Pro Forma Balance Sheet | Sales | $ | Assets | $ | Debt | $ | Costs | | | | Equity | | Net income | -------------------------------------------------
$ | Total | -------------------------------------------------
$ | Total | -------------------------------------------------
$ | |
The plug variable here is dividends paid in the amount of $.
|
Explanation: It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 11 percent, equity must be: |
Equity = Total liabilities and equity − Debt | Equity = $14,571 − 8,371 | Equity = $6,200 |
Equity increased by: |
Equity increase = $6,200 − 5,586 | Equity increase = $614 |
Net income is $5,850 but equity only increased by $614; therefore, a dividend of: |
Dividend = $5,850 − 614 | Dividend = $5,236 |
must have been paid. Dividends paid is the plug variable. |
Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): |
Income Statement | Balance Sheet | Sales | $19,000 | Assets | $9,000 | Debt | $5,700 | Costs | 14,100 | | | Equity | 3,300 | Net income | -------------------------------------------------
$4,900 | Total | -------------------------------------------------
$9,000 | Total |
-------------------------------------------------
$9,000 | | Phillips has predicted a sales increase of 10 percent. It has predicted that every item on the balance sheet will increase by 10 percent as well. |
Required: | Calculate the dividend paid. (Do not round your intermediate calculations.) |
| $5,050 | | $5,043 | | $15,890 | → | $5,060 | | $5,047 |
It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 10 percent, the pro forma income statement and balance sheet will look like this: |
Pro forma income statement | Pro forma balance sheet | Sales | $20,900 | Assets | $9,900 | Debt | $6,270 | Costs | 15,510 | | | Equity | 3,630 | Net income | -------------------------------------------------
$5,390 | Total | -------------------------------------------------
$9,900 | Total | -------------------------------------------------
$9,900 | | In order for the balance sheet to balance, equity must be: |
Equity = Total liabilities and equity – Debt | Equity = $9,900 – 6,270 | Equity = $3,630 |
Equity increased by: |
Equity increase = $3,630 – 3,300 | Equity increase = $330 |
Net income is $5,390 but equity only increased by $330; therefore, a dividend of: |
Dividend = $5,390 – 330 | Dividend = $5,060 |
must have been paid. Dividends paid is the plug variable. |
It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 10 percent, the pro forma income statement and balance sheet will look like this: |
Financial planning accomplishes which of the following for a firm?
I. determination of asset requirements
II. development of plans to contend with unexpected events
III. establishment of priorities
IV. analysis of funding options
| I, II, and III only | | I, III, and IV only | | I and III only | → | I, II, III, and IV | | II and IV only |
You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process?
| fixed assets | | sales forecast | | external financing need | | projected net income | | current expenses |
Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?
| capacity utilization policy | → | dividend policy | | capital budgeting policy | | capital structure policy | | net working capital policy |
Fresno Salads has current sales of $4,900 and a profit margin of 6.5 percent. The firm estimates that sales will increase by 5 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income?
| $338.70 | | $303.33 | | $341.10 | | $334.43 | | $327.18 |
Net income = $4,900 × .065 × (1 + .05) = $334.43
You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan?
I. How much net working capital will be needed?
II. Will additional fixed assets be required?
III. Will dividends be paid to shareholders?
IV. How much new debt must be obtained?
| I and IV only | | I, III, and IV only | | II and III only | | II, III, and IV only | → | I, II, III, and IV |
Financial planning:
| is a process that firms employ only when major changes to a firm's operations are anticipated. | → | considers multiple options and scenarios for the next two to five years. | | is a process that firms undergo once every five years. | | provides minimal benefits for firms that are highly responsive to economic changes. | | focuses solely on the short-term outlook for a firm. |