Problem 17.2: The most recent balance sheet (current year) for Southwest Forging Corporation is shown below. The company is about to embark on an advertising campaign that is expected to raise sales from the current level of $6 million to $8 million by the end of next year. It is currently operating at full capacity and will have to increase its investment in both current and fixed assets to support the projected level of new sales. In fact, the company estimates that both categories of assets will rise in direct proportion to the projected increase in sales. Additionally, Southwest Forging's payables and accrued expenses are expected to vary directly with sales. Also, notes payable will be used to supply the funds needed to finance next year's operations that are not forthcoming from other sources. The firm's net profits were 6 percent of current year's sales, but are expected to rise to 7 percent of next year's sales. To help support its anticipated growth in asset needs next year, the firm has suspended plans to pay cash dividends to its shareholders. In past years, a $1.50 per share dividend was paid annually. Fill in the table and project the firm's needs for discretionary financing for next year. Use notes payable as the balancing entry for future discretionary financing needs. (Hint: See table 17.2 on page 560 and remember the Balance Sheet must 'balance') INCOME STATEMENT sales net income dividends BALANCE SHEET current year % of sales next year % of sales NOTES B current D year % of sales next year % of sales NOTES 1 current assets $2,700,000 2 net fixed assets $2,400,000 3 TOTAL ASSETS $5,100,000 4 5 accounts payable $900,000 6 accrued expenses $300,000 37 notes payable $0 use notes payable as the balancing entry 38 CURRENT LIABILTIES $1,200,000 89 long-term debt $2,000,000 40 TOTAL LIABILITIES $3,200,000 41 common stock $500,000 42 retained earnings $1,400,000 43 COMMON EQUITY $1,900,000 44 TOTAL LIABILITIES & OE $5,100,000 TOTAL FINANCING PROVIDED 45