(This exercise uses the same information used in Exercise 4-38.) Romney and Associates wishes to forecast its net income for the year 2014. In addition, for planning purposes Romney intends to construct a forecasted statement of cash flows for 2014. Romney has assembled balance sheet and income statement data for 2013 and has forecast a balance sheet for 2014. In addition, Romney has estimated that its sales in 2014 will rise to $3,600 and does not anticipate paying any dividends in the coming year. This information is summarized here.

Balance Sheet .................................................. 2013 .................... 2014 Forecasted

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40 ........................... $ 48

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 ............................ 540

Property, plant, and equipment (net) . . . . . . . . . . . . . . . . 500 ............................ 700

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $990 ........................ $1,288

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $190 .......................... $ 228

Bank loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 ............................ 400

Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 300 ............................ 660

Total liabilities and stockholders' equity . . . . . . . . . . . . . $990 ....................... $1,288

Income Statement ......................................... 2013 ..................... 2014 Forecasted

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,000 ........................... $3,600

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,800

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,440

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 210

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126

Instructions:

1. Prepare a forecasted income statement for 2014. Clearly state what assumptions you make.

2. Prepare a forecasted statement of cash flows for 2014. Use the indirect method of reporting cash from operating activities?