Integrative-Pro forma statements Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance...

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Integrative-Pro forma statements Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance sheet |) 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 $6,009,000. (2) Cost of goods sold in 2015 includes $991,000 in fixed costs. (3) Operating expense in 2015 includes $256,000 in fixed costs. (4) Interest expense will remain unchanged. (5) The firm will pay cash dividends amounting to 35% 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 $366,000 will be purchased during the year. Total depreciation expense for the year will be $116,000. (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. Assets Cash Marketable securities Accounts receivable Inventories Provincial Imports, Inc. Income Statement for the Year Ended December 31, 2015 Sales revenue $4,991,000 Less: Cost of goods sold 2,743,000 Gross profits $2,248,000 Less: Operating expenses 844,000 Operating profits $1,404,000 Less: Interest expense 209,000 Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends $1,195,000 478,000 $717,000 250,950 $466,050 To retained earnings Provincial Imports, Inc. Balance Sheet December 31, 2015 $193,000 Liabilities and Stockholders' Equity Accounts payable $710,000 215,000 Taxes payable 95,000 622,000 Notes payable 201,000 490,000 Other current liabilities 5,400 Cost of goods 2,743,000 Gross profits $2,248,000 Less: Operating expenses 844,000 Operating profits $1,404,000 Less: Interest expense 209,000 Net profits before taxes $1,195,000 Less: Taxes (rate = 40%) 478,000 Net profits after taxes $717,000 Less: Cash dividends 250,950 To retained earnings $466,050 December 31, 2015 Assets Provincial Imports, Inc. Balance Sheet Liabilities and Stockholders' Equity Cash $193,000 Accounts payable $710,000 Marketable securities 215,000 Taxes payable 95,000 Accounts receivable 622,000 Notes payable 201,000 Inventories 490,000 Other current liabilities 5,400 Total current assets $1,520,000 Total current liabilities $1,011,400 Net fixed assets 1,392,000 Long-term debt 453,600 Common stock 70,000 Retained earnings 1,377,000 Total assets $2,912,000 Total liabilities and equity $2,912,000 n Integrative-Pro forma statements Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance sheet |) 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 $6,009,000. (2) Cost of goods sold in 2015 includes $991,000 in fixed costs. (3) Operating expense in 2015 includes $256,000 in fixed costs. (4) Interest expense will remain unchanged. (5) The firm will pay cash dividends amounting to 35% 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 $366,000 will be purchased during the year. Total depreciation expense for the year will be $116,000. (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. Assets Cash Marketable securities Accounts receivable Inventories Provincial Imports, Inc. Income Statement for the Year Ended December 31, 2015 Sales revenue $4,991,000 Less: Cost of goods sold 2,743,000 Gross profits $2,248,000 Less: Operating expenses 844,000 Operating profits $1,404,000 Less: Interest expense 209,000 Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends $1,195,000 478,000 $717,000 250,950 $466,050 To retained earnings Provincial Imports, Inc. Balance Sheet December 31, 2015 $193,000 Liabilities and Stockholders' Equity Accounts payable $710,000 215,000 Taxes payable 95,000 622,000 Notes payable 201,000 490,000 Other current liabilities 5,400 Cost of goods 2,743,000 Gross profits $2,248,000 Less: Operating expenses 844,000 Operating profits $1,404,000 Less: Interest expense 209,000 Net profits before taxes $1,195,000 Less: Taxes (rate = 40%) 478,000 Net profits after taxes $717,000 Less: Cash dividends 250,950 To retained earnings $466,050 December 31, 2015 Assets Provincial Imports, Inc. Balance Sheet Liabilities and Stockholders' Equity Cash $193,000 Accounts payable $710,000 Marketable securities 215,000 Taxes payable 95,000 Accounts receivable 622,000 Notes payable 201,000 Inventories 490,000 Other current liabilities 5,400 Total current assets $1,520,000 Total current liabilities $1,011,400 Net fixed assets 1,392,000 Long-term debt 453,600 Common stock 70,000 Retained earnings 1,377,000 Total assets $2,912,000 Total liabilities and equity $2,912,000 n