A. Prepare a pro forma income statement for the year ending December 31, 2013, using the fixed cost data provided to improve the accuracy of the percentage of sales method.

B. Prepare a proforma balance sheet as of December 31, 2013, using the information provided and the critical method. Include a retained earnings adjustment account.

C. Analyze these financial statements and comment on the resulting required external financing.

Data:

1. Projected sales are $6,000,000. 2. Costs of goods sold in 2012 include $1,000,000 in fixed costs. 3. Operating expenses in 2012 include $250,000 in fixed costs. 4. Interest expense remains unchanged. 5. The company will pay cash dividends in an amount equal to 40% of net profits after taxes. 6. Inventories and cash 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 will be purchased during the year at a cost of $356,000. Total depreciation expense for the year will be $110,000. 10. The tax rate will remain at 40%.