Table 4.4

Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2022, for Hennesaw Lumber, Inc.

Hennesaw Lumber, Inc. estimates that its sales in 2022 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2022. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2021 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions.

Income Statement Hennesaw Lumber, Inc. For the Year Ended December 31, 2021 Sales Revenue $4,200,000 Less: Cost of goods sold 3,570,000 Gross profits $ 630,000 Less: Operating expenses 210,000 Operating profits $ 420,000 Less: Interest expense 105,000 Net profits before taxes $ 315,000 Less: Taxes (21%) Net profits after taxes $ 248,850 Less: Cash dividends 120,000 To: Retained earnings $ 128,850 The pro forma net profits after taxes for 2022 are 66,150 (See Table 4.4) Income Statement Hennesaw Lumber, Inc. For the Year Ended December 31, 2021 Sales Revenue $4,200,000 Less: Cost of goods sold 3,570,000 Gross profits $ 630,000 Less: Operating expenses 210,000 Operating profits $ 420,000 Less: Interest expense 105,000 Net profits before taxes $ 315,000 Less: Taxes (21%) Net profits after taxes $ 248,850 Less: Cash dividends 120,000 To: Retained earnings $ 128,850 The pro forma net profits after taxes for 2022 are 66,150 (See Table 4.4)