Reference no: EM133034134
Problem - Below is information extracted from Peach Inc's financial statements for the years ending 2019 and 2020, and preliminary forecasts for 2021.
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2019 Reported
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2020 Reported
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2021 Preliminary forecasts
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Cash & cash equivalents
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2,100
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2,500
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2,550
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Short term investments
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0
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0
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Short term debt
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0
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0
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Current portion of long-term debt
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4,500
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3,500
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3,500
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Long-term debt
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25,000
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23,000
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21,000
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Interest income
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46
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no change
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Interest expense
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980
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no change
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Also note the following:
-Interest income is generated from cash & cash equivalents and short-term investments.
-Interest expense is generated from debt accounts.
-In the preliminary forecasting process, interest income and interest expense are forecasted with no change. 'Short-term investments' or 'Short-term debt' will be used as an account to balance the initial forecasted Balance Sheet.
-The 2021 forecasted effective tax rate is 25%.
Required -
(i) The initial forecasted Balance Sheet reveals that 'Total Assets' is 126,400, 'Total Liabilities' is 94,000, and 'Total Equity' is 35,400. Identify the account to balance the initial forecasted Balance Sheet and calculate the plug value.
(ii) Assuming a continuation of the 2020 rate of interest for total debt and a continuation of the 2020 rate of interest for investment, forecast interest income and interest expense in 2021.
(iii) Assuming net income is the only item that needs to be updated in the revised Balance Sheet, calculate the revised plug value.