This Year’s Actual Results Next Year’s Initial Forecast Net sales $17,000,000 $20,060,000 Cost of goods sold 13,600,000 16,048,000 Gross profit $3,400,000 $4,012,000 Fixed operating costs except depreciation 850,000 850,000 Depreciation 340,000 401,200 Earnings before interest and taxes $2,210,000 $2,607,800 Interest 340,000 340,000 Earnings before taxes $1,870,000 $2,267,800 Taxes 748,000 907,120 Net income $1,122,000 1,360,680 Common dividends 605,880 605,880 Addition to retained earnings $516,120 $754,800 Earnings per share $0.22 $0.27 Dividends per share $0.12 $0.12 Number of common shares (millions) 5.00 5.00   Which of the following are assumptions made by the initial income statement forecast? Check all that apply. The forecasted increase in net sales is 18.00%.   No additional external financing will be required.   The assigned depreciation method has changed.   The facility is not currently operating at full capacity.   The facility is currently operating at full capacity.     Which of the following could be a direct cause of financing feedback? Check all that apply. Borrowing from the bank   Purchasing additional buildings with internally generated funds   Repaying outstanding bonds   Issuing additional common stock     What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might: Spontaneously increase liabilities associated with the cost of goods sold   Reduce the level of cash on hand   Increase charges against net income, reducing the amount of available internally generated funds   Increase the length of the operating cycle

Question
This Year’s Actual Results
Next Year’s Initial Forecast
Net sales $17,000,000 $20,060,000
Cost of goods sold 13,600,000 16,048,000
Gross profit $3,400,000 $4,012,000
Fixed operating costs except depreciation 850,000 850,000
Depreciation 340,000 401,200
Earnings before interest and taxes $2,210,000 $2,607,800
Interest 340,000 340,000
Earnings before taxes $1,870,000 $2,267,800
Taxes 748,000 907,120
Net income $1,122,000 1,360,680
Common dividends 605,880 605,880
Addition to retained earnings $516,120 $754,800
Earnings per share $0.22 $0.27
Dividends per share $0.12 $0.12
Number of common shares (millions) 5.00 5.00
 
Which of the following are assumptions made by the initial income statement forecast? Check all that apply.
The forecasted increase in net sales is 18.00%.
 
No additional external financing will be required.
 
The assigned depreciation method has changed.
 
The facility is not currently operating at full capacity.
 
The facility is currently operating at full capacity.
 
 
Which of the following could be a direct cause of financing feedback? Check all that apply.
Borrowing from the bank
 
Purchasing additional buildings with internally generated funds
 
Repaying outstanding bonds
 
Issuing additional common stock
 
 
What is one of the potential consequences of financing feedback that might cause the actual financing needs to be higher than initially thought? Financing feedback might:
Spontaneously increase liabilities associated with the cost of goods sold
 
Reduce the level of cash on hand
 
Increase charges against net income, reducing the amount of available internally generated funds
 
Increase the length of the operating cycle

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