9. Integrative -Pro forma statements Provincial Imports, Inc., has assembled pas
ID: 2800293 • Letter: 9
Question
9. Integrative -Pro forma statements Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance sheet1) 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 $5,994,000 (2) Cost of goods sold in 2015 includes $1,009,000 in fixed costs (3) Operating expense in 2015 includes $257,000 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 $359,000 will be purchased during the year. Total depreciation expense for the year will be $101,000 (10) The tax rate will remain at 40% 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 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 Complete the pro forma income statement for the year ended December 31, 2016 below: (Round to the nearest dollar.) Pro Forma Income Statement Provincial Imports, 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 Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends (40%) To Retained earnings 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. NOTE: Taxes payable for 2015 are about 20.1784% of the 2015 taxes on the income statement. The pro forma value is obtained by taking 20.1784% of the 2016 taxes Complete the assets part of the pro forma balance sheet as of December 31, 2016: (Round to the nearest dollar.)Explanation / Answer
PARTICULARS 2015 CHANGE (NO. OF TIMES) 2016 PROJECTED SALES 4994000 1.200240288 5994000 5994000 COGS: FIXED 1009000 1 1211042 1211042 COGS: VARIABLE 1748000 1.200240288 1748000 1748000 OPERATING EXP: FIXED 257000 1 257000 257000 OPERATING EXP: VARIABLE 600000 1.200240288 720144 720144 INTEREST EXP 203000 1 203000 203000 CASH 200000 2 400000 400000 MARKETABLE SECURITIES 215000 1 215000 215000 ACCOUNTS RECEIVABLE 619000 1.200240288 742949 742949 INVENTORIES 499000 2 998000 998000 TOTAL CURRENT ASSETS 1533000 2355949 2355949 NET FIXED ASSETS 1409000 1409000 1409000 TOTAL ASSETS 2942000 3764949 3764949 ACCOUNTS PAYABLE 709000 1.200240288 850970 850970 TAXES PAYABLE 95000 20.1784% OF TAX IN INC. STATEMENT 143645 143645 NOTES PAYABLE 204000 1 204000 204000 OTHER CURRENT LIABILITIES 4800 1.200240288 5761 5761 TOTAL CURRENT LIABILITIES 1012800 1204376 1204376 LONG TERM DEBT 476200 1 476200 476200 COMMON STOCK 78000 1 78000 78000 RETAINED EARNINGS 1375000 2006373 2006373 TOTAL LIABILITIES AND EQUITIES 2942000 3764949 3764949 PROFORMA INCOME STATEMENT SALES 5994000 LESS COGS 2959042 GROSS PROFITS 3034958 LESS OPERATING COSTS 977144 LESS DEPRECIATION 101000 OPERATING PROFIT 1956813 LESS INTEREST EXP 203000 NET PROFIT BEFORE TAXES 1753813 LESS TAX @ 40% 701525 PROFIT AFTER TAX (PAT) 1052288 LESS CASH DIVIDENDS 420915 RETAINED EARNINGS 631373 PROFORMA BALANCE SHEET (ASSET) CASH 400000 MARKETABLE SECURITIES 215000 ACCOUNTS RECEIVABLE 742949 INVENTORIES 998000 TOTAL CURRENT ASSETS 2355949 NET FIXED ASSETS 1409000 TOTAL ASSETS 3764949 PROFORMA BALANCE SHEET (LIABILITIES) ACCOUNTS PAYABLE 850970 TAXES PAYABLE 143645 NOTES PAYABLE 204000 OTHER CURRENT LIABILITIES 5761 TOTAL CURRENT LIABILITIES 1204376 LONG TERM DEBT 476200 COMMON STOCK 78000 RETAINED EARNINGS 2006373 TOTAL LIABILITIES AND EQUITIES 3764949
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