Wallace Corporation€™s budget planning meeting is like a zoo. Mikhail Souta, the credit manager, is naturally conservative and Lillian Case, the marketing manager, is the opposite. They have argued back and forth about the effect of various factors that influence the sales growth rate, such as credit policies and market potential. Based on the following current year data provided by Haley Himic, the controller, Mikhail expects Wallace€™s revenues to grow 5 percent each quarter above last year€™s level; Lillian insists the growth rate will be 8 percent per quarter.

Historically, cost of goods sold is projected at 50 percent of sales revenue. Selling and administrative expenses are expected to be 12.5 percent of sales revenue.

Required
a. Prepare a pro forma income statement for the coming year using the credit manager€™s growth estimate.
b. Prepare a pro forma income statement for the coming year using the marketing manager€™s growth estimate.
c. Explain why two executives in the same company could have different estimates of futuregrowth.

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First Quarter Second Quarter Third Quarter Fourth Quarter Current Year Total Sales revenue Cost of goods sold Gross margin Selling & admin. expenses Net income $480,000 $400,000 $432,000 $628,000 $1,940,000 212,000 220,000 52,800 $172,000 $146,000 $167,200 $234,800 720,000 244,000 236,000 64,000 202,000 198,000 52,000 312,000 316,000 81,200 970,000 970,000 250,000