Dragon Telecommunications Inc. wants to create forecasted financial statements for 2018 based on its accounting data in 2017.

Question

In 2017 total revenue was $1,550,000; cost of goods sold was $1,250,000; selling and G&A expenses were $110,000; depreciation expense was $15,000; interest expense was $25,000; the average tax rate was 35%, and the number of shares outstanding was 80,000.

Also, in 2017 Dragon had cash of $20,000; accounts receivable of $120,000; inventory of $220,000; plant & equipment of $1,150,000 with an accumulated depreciation of $250,000. Accounts payable, notes payable, long-term debt, common stock, additional paid-in-capital, and retained earnings represented 7%, 0.5%, 20%, 44.5%, 12%, and 16% of total assets, respectively.

For 2018, Dragon expects a 25% increase in total revenue, while cost of goods sold and selling and G&A expenses are expected to remain at the same proportion of total revenue as in 2017. Both total plant and equipment and depreciation expense will increase by 12%. Similarly, long-term debt is forecasted and interest expense will increase by 20%, but the tax rate and the number of shares outstanding will remain constant.

Additionally accounts receivable, inventory, accounts payable, and notes payable are expected to increase 15%, while common stock and paid-in-capital will increase by 25%. The dividend policy in 2018 will be based on a dividend payout ratio of 50%. In other words, 50% of forecasted earnings will be paid to shareholders as dividends.
a) Using these projections, create the forecasted 2018 income statement, balance sheet, and statement of cash flows for Dragon Telecommunications Inc. Each statement should be on a separate worksheet.

Answer 1