Phillips Corporation Essay

Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): |

Income Statement | Balance Sheet | Sales | $17,000 | Assets | $13,127 | Debt | $7,541 | Costs | 11,730 | | | Equity | 5,586 | Net income | -------------------------------------------------
$5,270 | Total | -------------------------------------------------
$13,127 | Total | -------------------------------------------------
$13,127 | | Phillips has predicted a sales increase of 11 percent. It has predicted that every item on the balance sheet will increase by 11 percent as well. Create the pro forma statements and reconcile them. (Do not include the dollar signs ($).
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Explanation: It is important to remember that equity will not increase by the same percentage as the other assets. If every other item on the income statement and balance sheet increases by 11 percent, equity must be: |

Equity = Total liabilities and equity − Debt | Equity = $14,571 − 8,371 | Equity = $6,200 |

Equity increased by: |

Equity increase = $6,200 − 5,586 | Equity increase = $614 |

Net income is $5,850 but equity only increased by $614; therefore, a dividend of: |

Dividend = $5,850 − 614 | Dividend = $5,236 |

must have been paid. Dividends paid is the plug variable. |

Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): |

Income Statement | Balance Sheet | Sales | $19,000 | Assets | $9,000 | Debt | $5,700 | Costs | 14,100 | | | Equity | 3,300 | Net income | -------------------------------------------------
$4,900 | Total | -------------------------------------------------
$9,000 | Total |