Exercise 14-15A (Algo) Preparing pro forma income statements with different assumptions LO 14-6

Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
Sales revenue	$	180,000			$	210,000			$	220,000			$	270,000			$	880,000
Cost of goods sold		108,000				126,000				132,000				162,000				528,000
Gross profit		72,000				84,000				88,000				108,000				352,000
Selling & administrative expenses		18,000				21,000				22,000				27,000				88,000
Net income	$	54,000			$	63,000			$	66,000			$	81,000			$	264,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue.

Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 10 percent for each respective quarter above last years level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required

Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadas estimate.

Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks estimate.