Larsen Company Larsen Company

Balance Sheet Balance Sheet

As of December 31, 19x5 As of December 31, 19x5
Asset Asset

Current Assets Sales (1,920,000.00)

Cash 80,000.00 COGS 1,240,000.00
Accounts Receivable 160,000.00 Gross Profit (35%) (680,000.00)
Inventory of materials 500,000.00 Opex:
Total Current Assets 740,000.00 Selling, G&A Expenses 430,000.00
PNL before tax (250,000.00)
Non-Current Assets:
New Equipment 250,000.00
Old Plant and Equipment 80,000.00
AD Old Plant (80,000.00)
New Plant and Equipment 700,000.00
AD New Plant (120,000.00)
Total Non-Current Assets 830,000.00
Total Assets 1,570,000.00

Liabilities & Equity

Current Liabilities
Accounts Payable (40,000.00)
Total Current Liabilities (40,000.00)

Non -Current Liabilities

Accounts Payable (230,000.00)
Total Non-Current Liabilities (230,000.00)

Shareholders Equity
Common Stock (900,000.00)
Retained Earnings (400,000.00)
Total Shareholder's Equity (1,300,000.00)

Total Liabilities and SHE (1,570,000.00)

 19x4 Adjustment 1995 19x4 19x5
Asset Ending Balances Dr Cr Should be Ending Balance Dr Cr Ending Balances
Cash 40,000.00 40,000.00 1,920,000.00 (1,880,000.00) 80,000.00
Accounts Receivable 80,000.00 80,000.00 80,000.00 160,000.00
Inventory of materials 250,000.00 250,000.00 650,000.00 (400,000.00) 500,000.00
Total Current Assets 370,000.00 - - 370,000.00 740,000.00
Plant and Equipment
New Equipment - - 250,000.00 250,000.00
Old Plant and Equipment - 80,000.00 80,000.00 80,000.00
AD Old Plant - (80,000.00) (80,000.00) (80,000.00)
New Plant and Equipment 700,000.00 700,000.00 700,000.00
AD New Plant - - (120,000.00) (120,000.00)
Total Assets 1,070,000.00 80,000.00 (80,000.00) 1,070,000.00 1,570,000.00

Liabilities and Equities

Accounts Payable (20,000.00) (20,000.00) (20,000.00) (40,000.00)
Plant equipment loan - - 20,000.00 (250,000.00) (230,000.00)
Common Stock (900,000.00) (900,000.00) (900,000.00)
Retained Earnings (150,000.00) 80,000.00 (80,000.00) (150,000.00) (400,000.00)
Total Liab and Equity (1,070,000.00) 80,000.00 (80,000.00) (1,070,000.00) (1,570,000.00)

Income statement
Sales (1,600,000.00) - (1,920,000.00) (1,920,000.00)
COGS 1,040,000.00 - 1,240,000.00 1,240,000.00
OPEX GP (560,000.00) - - - (680,000.00)
Selling, G&A Expenses 390,000.00 - 430,000.00 430,000.00
Net PnL (170,000.00) - - - (250,000.00)

checking 320,000.00 (320,000.00) 4,590,000.00 (4,590,000.00)

Should be zero - -
JE# JE: Dr Cr
1 Old Plant and Equipment 80,000.00 19x5 Unadj Ending Bal Should be doubled Req Adj
RE(COGS) (80,000.00) Cash 410,000.00 80,000.00 (330,000.00)
Accounts Receivable 80,000.00 80,000.00 (80,000.00)
2 RE(COGS-DEP) 80,000.00 Inventory of materials 250,000.00 250,000.00 (250,000.00)
Adjust computation in JE#11
AD Old Plant (80,000.00)
COGS 19x5
3 COGS-DEP 120,000.00 Beg Materials 250,000.00
AD New Plant (120,000.00) Purchases 400,000.00
Ending Materials (250,000.00)
4 COGS - Salaries Wages 280,000.00 Materials for COGS w/o Mark up 400,000.00
Cash (280,000.00) 120% Mark-up 1.2
COGS Materials 480,000.00
5 Material 400,000.00 COGS - Dep 120,000.00
Cash (400,000.00) COGS - Salaries Wages 280,000.00
COGS - FOH 360,000.00
6 COGS - Materials 480,000.00 Total COGS 1,240,000.00
Materials (480,000.00)
(400,000*1.2) as GP% must still the same and movement same with Sales
19x5 Unadj Ending Bal Should be doubled Req AdjADJ
7 COGS - FOH 360,000.00 Accounts Payable (20,000.00) (40,000.00) (20,000.00)
Cash (360,000.00) -
-
8 Selling, G&A Expenses 430,000.00 Adjust computation in JE#12
Cash (430,000.00)

9 Cash 1,920,000.00
Sales (1,920,000.00)
(1,600,000*1.2) increases in sales forecast 120%

10 New Equipment 250,000.00

Plant equipment loan (250,000.00)

11 Accounts Receivable 80,000.00

Inventory of materials 250,000.00
Cash (330,000.00)
to reclass the should be as per instruction doubled the amount from Beg Bal in Current Assets
See note 11
12 Plant equipment loan 20,000.00
Accounts Payable (20,000.00)
13 PNL 250,000.00
Retained Earnings (250,000.00)
 Ratio Formula 19x4 19x5

Debt Ratio TL/TA 2% 3% This good since 1:0.17 means that we have still more assets than liabilities and can cover it debt Good
Equity Ratio TE/TA 98% 83% This is fine, and understandable that the Larsen company will acquire new equipment by having the said loan. Bad, Neutral
Debt to Equity Ratio TL/TE 2% 3% Since it acquired equipment for the improvement of its production, the next years/months should lowered the DER by the time of payment Bad, Neutral
debt has incurred and as profit increased with the new eq..

Gross Revenue 100% 100% ok

COGS -65% -65% ok
Gross profit Ratio 35% 35% ok

Operating Margin 11% 13% Increased in OM means that the company can pay its fix expenses like interest and debt

Therefore we conclude that based on the FS - BS and IS forecast, I would suggest that Larsen company can obtain a loan up to his profit $240,000 but since there was an
additional in AP of $20,000 increase in the short term loan the suggested loan would be $230,000 to give allowances in the short term loan.

The quick asset is a total of $230,000 which is enough and sufficient in the new loan to cover.