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At year-end 2019, Waqar Pharma’s total assets were $3.25 million and itsaccounts payable were $890,000. Sales, which in 2019 were $4.5 million, are expectedto increase by 40% in 2020. Total assets and accounts payable are proportional tosales, and that relationship will be maintained.   Waqar typically uses no currentliabilities other than accounts payable. Common stock amounted to $925,000 in 2019,and retained earnings were $695,000. Waqar has arranged to sell $295,000 of newcommon stock in 2020 to meet some of its financing needs. The remainder of itsfinancing needs will be met by issuing new long-term debt at the end of 2020.(Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 6.5%, and 40% ofearnings will be paid out as dividends.   Required (a.) What were Waqar’s total long-term debt and total liabilities in 2019? (b.) How much new long-term debt financing will be needed in 2020? (c.) Prepare balance sheet at the end of 2020

- November 14, 2022 - Edwin Tunner

At year-end 2019, Waqar Pharma’s total assets were $3.25 million and itsaccounts payable were $890,000. Sales, which in 2019 were $4.5 million, are expectedto increase by 40% in 2020. Total assets and accounts payable are proportional tosales, and that relationship will be maintained.

 

Waqar typically uses no currentliabilities other than accounts payable. Common stock amounted to $925,000 in 2019,and retained earnings were $695,000. Waqar has arranged to sell $295,000 of newcommon stock in 2020 to meet some of its financing needs. The remainder of itsfinancing needs will be met by issuing new long-term debt at the end of 2020.(Because the debt is added at the end of the year, there will be no additional interest

expense due to the new debt.) Its net profit margin on sales is 6.5%, and 40% ofearnings will be paid out as dividends.

 

Required

(a.) What were Waqar’s total long-term debt and total liabilities in 2019?

(b.) How much new long-term debt financing will be needed in 2020?

(c.) Prepare balance sheet at the end of 2020

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