Reference no: EM132462105
Integrativelong dash
Pro forma statementsProvincial? Imports, Inc., has assembled past ?(2019 )and financial projections for use in preparing financial plans for the coming year ?(2020) Information related to financial projections for the year 2020
2020 is as? follows:
?(1) Projected sales are $ 5,990,000
?(2) Cost of goods sold in 2019 includes $1,004,000 in fixed costs.
?(3) Operating expense in 2019 includes $260,000 in fixed costs.
?(4) Interest expense will remain unchanged.
?(5) The firm will pay cash dividends amounting to 40% of net profits after taxes.
?(6) Cash and inventories will double.
?(7) Marketable? securities, notes? payable, long-term? debt, and common stock will remain unchanged.
?(8) Accounts? receivable, accounts? payable, and other current liabilities will change in direct response to the change in sales.
?(9) A new computer system costing $364,000 will be purchased during the year. Total depreciation expense for the year will be $119,000.
?(10) The tax rate will remain at 40 %
Question a. Prepare a pro forma income statement for the year ended December? 31, 2020 using the fixed cost data given to improve the accuracy of the? percent-of-sales method.
Question b. Prepare a pro forma balance sheet as of December? 31, 2020 using the information given and the judgmental approach. Include a reconciliation of the retained earnings account.
Question c. Analyze these? statements, and discuss the resulting external financing required.
for the Year Ended December 31, 2019
Sales revenue $5,006,000
Less: Cost of goods sold 2,757,000
Gross profits $2,249,000
Less: Operating expenses 851,000
Operating profits $1,398,000
Less: Interest expense 197,000
Net profits before taxes $1,201,000
Less: Taxes (rate=40%) 480,400
Net profits after taxes $720,600
Less: Cash dividends 288,240
To retained earnings $432,360
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