Pro forma income statement The marketing department of Metroline Manufacturing e

Question

Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.59 million. Interest expense is expected to remain unchanged at $36,000, and the firm plans to pay $71,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, is given, along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016 b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016. Complete the pro forma income statement for the year ended December 31, 2016 below: (Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest dollar.) Pro Forma Income Statement Metroline Manufacturing, Inc. for the Year Ended December 31, 2016 (percent-of-sales method) Sales Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense

Explanation / Answer

A)

SALES-$1590000

LESS COGS-1034797 917000/1409000*100=65.0816%

(1590000*65.0816%)

GROSS PROFIT -$555203

LESS-OPERATING EXPENSES-145571 129000/1409000*100=9.1554%

(1590000*9.1554%)

OPERATING PROFIT-$409632

LESS- INTEREST EXPENSE-36000

NET PROFIT BEFORE TAXES-$373632

LESS-TAXES(RATE=40%)-149452

NET PROFIT AFTER TAXES-$224180

LESS-DIVIDENDS-$7100

RETAINED EARNINGS-$217080

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