YZ company Balance sheet				YZ company income statement
	Balance Sheet				Income Statement
	Cash and equivalents	570			Net Sales	7800
	Operating assets	650			Cost of Goods Sold	-5900
	Property, plant, and equipment	2700			Gross Profit	1900
	Other assets	110			Operating Expense	-990
	Total Assets	4030			Operating Income	910
	Current liabilities	920			Other Income	105
	Long-term debt	1280			Net Interest Expense	-200
	Other liabilities	120			Pre-tax Income	815
	Total liabilities	2320			Income Tax	-285
	Paid in capital	340			Net Income	530
	Retained earnings	1370			Earnings per Share	2
	Total equity	1710			Shares Outstanding	265000
	Total liabilities and equity	4030			Recent Price	34.5
	Prepare a pro forma income statement, balance sheet, and cash flow statement for YZ assuming a 10% increase in sales.
	Income Statement - in order to complete the pro forma, we will make the following assumptions regarding the upcoming year:
	Cost of Goods Sold and Operating Expenses will remain the same as a percentage of Net Sales.
	Other Income will remain constant.
	Any change in long-term debt will not occur until year end, thus Interest Expense will stay constant year over year.
	Taxes will remain at 35% of Pre-tax Income.
	There will be no change in number of shares outstanding.
	Balance Sheet - without specific guidance, we will make the following assumptions:
	Cash, Operating Assets, and Current Liabilities will spontaneously increase in proportion to the sales growth, or 10%.
	Property, plant, and equipment are not at capacity, so there is no increase in the gross amount of PP&E.
	Net PP&E will decrease by the amount of straight line depreciation, or $175.
	Dividends paid will remain constant at $220
	Retained Earnings will increase by the amount of Net Income less dividends paid, or $589 - $220 = $369.
	The resulting differences in the change in Assets vs. the change in Liabilities plus Equity will be reflected in the Long-term Debt account.
	In order for Total Assets and Total Liabilities & Equity to be in balance, Long-term Debt of $1,280 will be reduced by $514 to $766.

Answer rating: 100% (QA)

Pro Forma Income Statement Net Sales 7800 110 8580 Cost of Goods Sold 5900 assumed to remain the sam... View the full answer