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Smiley Corporation's current sales and partial balance sheet are shown below
Smiley Corporation's current sales and partial balance sheet are shown below.
| This year | ||||
| Sales | $ | 10,000 | ||
| Balance Sheet: Liabilities | ||||
| Accounts payable | $ | 2,000 | ||
| Notes payable | $ | 2,500 | ||
| Accruals | $ | 2,000 | ||
| Total current liabilities | $ | 6,500 | ||
| Long-term bonds | $ | 2,000 | ||
| Total liabilities | $ | 8,500 | ||
| Common stock | $ | 2,000 | ||
| Retained earnings | $ | 2,000 | ||
| Total common equity | $ | 4,000 | ||
| Total liabilities & equity | $ | 12,500 | ||
Sales are expected to grow by 10% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities? Do not round intermediate calculations. Round your answer to the nearest dollar. $
Expert Solution
Answer:
Spontaneous liabilities are accounts payable and accruals in the given balance sheet
spontaneous liabilities will increase directly in proportion to sales
Spontaneous liabilities = accounts payable + accruals
= $2000 + $2000
= $4000
Increase of 10% in spontaneous liabilities
spontaneous liabilities = $4000 + $4000 * 10%
= $4000 + $400
= $4400
Therfore, spontaneous liabilities are $4400
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