Reference no: EM133028815
Question - Provincial? Imports, Inc., has assembled past? (2015) financial statements? (income statement and balance sheet?) and financial projections for use in preparing financial plans for the coming year? (2016).
Information related to financial projections for the year 2016 is as? follows:
?(1) Projected sales are $5,998,000.
?(2) Cost of goods sold in 2015 includes $990,000 in fixed costs.
?(3) Operating expense in 2015 includes $241,000 in fixed costs.
?(4) Interest expense will remain unchanged.
?(5) The firm will pay cash dividends amounting to 35% 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 $348,000 will be purchased during the year. Total depreciation expense for the year will be $103,000.
?(10) The tax rate will remain at 40%.
Required -
a. Prepare a pro forma income statement for the year ended December? 31, 2016, using the fixed cost data given to improve the accuracy of the? percent-of-sales method.
b. Prepare a pro forma balance sheet as of December? 31, 2016, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account.
c. Analyze these? statements, and discuss the resulting external financing required.