LG$(5)$ P$4-22$ Integrative: Pro forma statements Provincial Imports Inc. has

assembled last year's financial statements $($income statement and balance sheet

below$)$ and financial projections for use in preparing financial plans for the

coming year.

Provincial Imports Inc. Income Statement for the Year Just Ended

Provincial Imports Inc. Balance Sheet for the Year Just Ended

Information related to financial projections for next year is as follows:

$1.$ Projected sales are $$6,000,000.$

$2.$ Cost of goods sold last year includes $$1,000,000$ in fixed costs.

$3.$ Operating expense last year includes $$250,000$ in fixed costs.

$4.$ Interest expense will remain unchanged.

$5.$ The firm will pay cash dividends amounting to $40\%$ 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 $$356,000$ will be purchased during the year. Total depreciation expense for the year will be $$110,000.$

$10.$ The tax rate will remain at $21\%$ and taxes payable are $38\%$ of the tax liability on the income statement.

a$.$ Prepare a pro forma income statement for next year using the fixed cost data given to improve the accuracy of the percent$-$of$-$sales method.

b$.$ Prepare a pro forma balance sheet for next year 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.