Answer:
Answer : Retained earning = 61400
Explanation:
Sales next year (100000+20000) = 120000
Increase in sales = 120000-100000/100000= 20%
Current profit margin = 7500/100000= 7.5%
Dividend Payout ratio = Dividend / net jncome = 3000/7500 = 40%
New profit margin = 120000 x 7.5% =9000
New Dividend = 9000 x40% = 3600
Performance Balance sheet
Cash 10000(1+0.2) 12000
Marketible securities (no change) 5000
Account Receivable 25000(1+0.02) 30000
Inventory 35000(1+0.02) 42000
Total Current Asset 89000
Net Fixed Asset (80000+12000) 92000
Total Asset 181000
Accounts payable 5000(1+.02) 6000
Accruals 2000(1+.02) 2400
Notes Payable 8% (no change as rolled over) 12000
Total Current Liabilities 20400
Long Term Debt 10% 48000
Common stock 32000
Retained Earning 61400
Balancing figure (additional funding) 19200
181000
Retained earning = Old balance + (Current year net income - dividend paid)
56000+ ( 9000-3600) =61400
2) changes in working capital.
Working capital means Current asset - current liabilities
Earlier it was 75000 - 19000 = 56000
Now its 89000 - 20400 = 68600
Working capital has been increased by 68600 - 56000 =12600
(working capital is the amount needed to run business day to day activities.)
Although sales increased by 20% but working capital doesn't increase by 20% because payable were rolled over. So its bad management as company management is expanding its businesses not from current business retained earning but by deferring payables
