Provided the income statement below. Year 0 Year 1 Year 2 Revenues 17,000 Cost of goods sold
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Question:
Provided the income statement below.
| Year 0 | Year 1 | Year 2 | ||
| Revenues | 17,000 | |||
| Cost of goods sold | 9,200 | |||
| Gross profit | 7,800 | |||
| SG&A | 4,790 | |||
| Depreciation | 1,700 | |||
| Operating Profit | 1,310 | |||
| Interest expense | 155 | |||
| Income before taxes | 1,155 | |||
| Taxes @35% | 404 | |||
| Net Income | 751 | |||
| Dividends | 225 | |||
| Addition to retained earnings | 526 |
| Create pro forma financial statements from the information provided above | ||||||||
| Year 1 | ||||||||
| Sales revenues increase 3.5% | ||||||||
| Gross margin is 50% | ||||||||
| SG&A increases 1.2% | ||||||||
| $2000 of PP&E is purchased on January 1, | ||||||||
| New PP&E is depreciated over 10 years | ||||||||
| Inventory grows in line with COGS | ||||||||
| Assume that all other asset accounts grow in line with sales (3.5%). | ||||||||
| Accounts Payable grow in line with COGS | ||||||||
| Accrued and deferred income taxes grows in line with taxes. | ||||||||
| Long-term debt declines by $200 | ||||||||
| Unless otherwise stated, liability accounts grow in line with sales (3.5%) | ||||||||
| Treasury Stock purchases equal $300 | ||||||||
| Average interest cost of all interest bearing debt is 1.6% | ||||||||
| Dividend payout ratio is 22% | ||||||||
| Tax rate is 35% | ||||||||
| Funding requirements should be financed with short-term debt | ||||||||
| Y2 | ||||||||
| Sales revenue decline by 2.0% | ||||||||
| Gross margin declinesto 48% | ||||||||
| Inventory grows in line with COGS | ||||||||
| SG&A declines by 1% | ||||||||
| $800of PP&E is sold on January 1 for $600 cash. (Gross =$800, Accumulated depreciation = $200) | ||||||||
| Annual depreciation expense declines by $ 80 | ||||||||
| Assume that all other asset accounts grow in line with sales. (-2.0%) | ||||||||
| Accounts Payable grow in line with COGS | ||||||||
| Long-term debt declines by $150 | ||||||||
| Accrued and deferred income taxes grows in line with taxes. | ||||||||
| Unless otherwise stated, liability accounts grow in line with sales (-2.0%) | ||||||||
| Treasury Stock purchase is $100. | ||||||||
| Average interest cost of all interest bearing debt is 1.8% | ||||||||
| Dividend payout ratio changes to 25% | ||||||||
| Tax rate is 35% | ||||||||
| Funding requirements should be financed with short-term debt | ||||||||
| Excess cash is used to retire short-term debt | ||||||||
| 100 shares of $1 par value common stock is issued for $300. | ||||||||
| Do not add significant amounts to cash unless Loans & notes payable is drawn down to zero. | ||||||||
Expert Answer:
To create pro forma financial statements based on the provided information we will calculate the values for each item in the income statement and balance sheet for Year 1 and Year 2 Pro Forma Income S... View the full answer
Related Book For 
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
