Use the following information and the percent-of-sales method to answer the following question(s).
Below is the 2014 year-end balance sheet for Banner,Inc.Sales for 2014 were $1,600,000 and are expected to be $2,000,000 during 2015.In addition,we know that Banner plans to pay $90,000 in 2015 dividends and expects projected net income of 4% of sales.(For consistency with the Answer selections provided,round your forecast percentages to two decimals. )
Banner,Inc.Balance Sheet
December 31,2014
Assets
Current assets $890,000
Net fixed assets 1,000,000
Total $1,890,000
Liabilities and Owners' Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital)360,000
Retained earnings 270,000
Common equity 630,000
Total 1,890,000
-Banner's projected accounts payable balance for 2015 is
A)$160,000.
B)$120,000.
C)$200,000.
D)$300,000.

Question

Quizplus · Accepted Answer

The percent-of-sales method assumes that accounts payable will increase proportionally with sales. Since sales are expected to increase by 25% (from $1,600,000 to $2,000,000), accounts payable will also increase by 25%, resulting in a projected balance of $200,000 for 2015.

Use the Following Information and the Percent-Of-Sales Method to Answer