Question

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 $ 2,000
Accruals $ 1,800
Total current liabilities $ 5,800
Long-term bonds $ 2,000
Total liabilities $ 7,800
Common stock $ 1,500
Retained earnings $ 3,000
Total common equity $ 4,500
Total liabilities & equity $ 12,300
Sales are expected to grow by 12% 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.

Answer 1

The projected spontaneous liabilities can be calculated by multiplying the expected sales growth rate by the current accounts payable and accruals.

Step-by-step explanation:

The projected spontaneous liabilities can be calculated using the percentage of sales method. Spontaneous liabilities are those liabilities that increase or decrease in proportion to sales. In this case, we can calculate the projected accounts payable and accruals.

To calculate the projected accounts payable, we can multiply the expected sales growth rate by the current accounts payable. So, 12% of $2,000 (current accounts payable) is $240.

To calculate the projected accruals, we can multiply the expected sales growth rate by the current accruals. So, 12% of $1,800 (current accruals) is $216.

Therefore, the projected spontaneous liabilities are $240 for accounts payable and $216 for accruals.