Pel Castro Corporation
The Pel Castro Corporation submitted the following financial statements for fiscal year, ended December 31, 2009. On the basis of the information contained in the statements and in the accompanying notes, prepare a projection for year 2010.
Balance Sheet (December 31, 2009)
Cash Php 62,400 Accounts receivable 520,000 Inventories 624,000 Total current assets Php1,206,400 Net fixed assets 852,800 Due from Officers 104,000
Income Statement for 2009
Cost of goods manufactured and sold (36,000 units) Gross profit on sales
General and administrative expense Net profit on operations
Other deductions (net)
Net profit before tax
Net profit after tax
Bank notes payable Php 416,000 Accounts payable 166,400 Total current liabilitiesPhp 582,400
Capital stock Retained earnings Total Liabilities and Net Worth
208,000 1,040,000 332,800
2,995,200 Php 748,800 374,400 Php 374,400 203,840 Php 170,560 4,160 Php 166,400 26,000 Php 140,400
Statement of Retained Earnings
Retained earnings at beginning of year Net profit for year
Less dividends paid
Retained earnings at end of year
Php 254,800 140,400 Php 395,200 62,400 Php 332,800
During the next 12 months, management anticipates the following:
- It can increase the number of units sold by 25 percent, by reducing the unit price 10 percent and by increasing selling expenses 10 percent over the amount spent in 2009.
- Unit production cost can be reduced 10 percent through economies of scale.
- Total Peso amount of inventories will remain approximately the same.
- The turnover of receivables will be improved; 10% of sales are in cash. Of the credit sales 70% will be collected in the following month and the balance in the month after.
- General and administrative expense as well as other deductions (net) should show no increase in Peso amount over the 2009 figures.
- Taxes have jumped to 40% of profits.
- Depreciation charges should run at about Php 41,600; no capital expenditures are planned. Because the firm is in manufacturing, depreciation is already part of the cost of goods sold.
- The 6% dividend rate will remain unchanged. Like tax, dividends will have been paid by the end of the year.
- Due from officers will be reduced by Php 20,800 by the end of 2010. Payment will be deducted from officers’ monthly salaries.
- Accounts payable at the close of the year should amount to no more than the figure for December 31, 2009.
- A payment of Php 41,600 will be made on the mortgage debt at the end of the year.
- All cash in excess of Php 62,400 at the end of 2010 will be used to reduce bank notes payable.
- Assume 12% p.a. interest on the mortgage.
- Assume 10% p. a. interest on bank notes payable.
- Assume the bank notes payable and mortgage were taken at the end of 2009. This would explain why there is no interest expense in 2009.