The Loftis Company is preparing its pro forma financial statements for the next year using this model. The abbreviated financial statements are presented below: Sales Growth 20% Tax Rate 34% Income Statement Sales $780,000 Costs 415,000 Depreciation 135,000 Interest 68,000 Taxable Income $162,000 Taxes 55,080 Net Income $106,920 Dividends 30,000 Additional Retained Earnings $76,920 Balance Sheet Assets Liabilities and Owner's Equity Current Assets $240,000 Total Debt $880,000 Net Fixed $1,350,000 Owners Equity $710,000 $1,590,000 $1,590,000 Required: A. Calculate the Parameter Estimates Cost Percentage = (Cost/Sales) Depreciation Rate = (Depreciation/Beginning Fixed Assets) Interest Rates = (interest paid/total debt) Tax Rate = (taxes/net income) Payout ratio = (dividends/ net income) Capital Intensity Ratio = (Fixed Assets /Sales) REQUIRED: b. Construct the pro forma financial statements using the parameters you calculated. Your pro forma balance sheet should balance. Loftis Company "Pro forma Income Statement" Sales $- Costs - Depreciation - Interest - Taxable income $- Taxes - Net income $- Dividends Additions to retained earnings Loftis Company "Pro forma Balance Sheet" Assets Liabilities and Equity Current assets $- Total debt $- Net fixed assets - Owners' equity - Total assets $- Total debt and equity $- b. Construct the pro forma balance sheet. What is the total debt necessary to balance the pro forma balance sheet? c. Explain why and/or when you would "implement" this approach in an organization (Short Essay 125 to 150 words) d. Discuss several means of determining the effectiveness of the "outcomes" or results using this approach (Short Essay 125 to 150 words)

Answer rating: 100% (QA)

Loftis Company Pro Forma Analysis a Parameter Estimates Cost Percentage Cost Sales 415000 780000 0532 532 Depreciation Rate Depreciation Beginning Fix... View the full answer