Question

Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Provincial Imports, Inc., Balance Sheet December 31, 2015 Liabilities and stockholders' equity $ 200,000 Accounts payable 225,000 Taxes payable 625.000 Notes payable 500,000 Other current liabilities $1,550,000 Total current liabilities 1,400,000 Long-term debt $2.950,000 Total liabilities Common stock Retained earnings Total liabilities and equity $ 700,000 95,000 200,000 5,000 $1,000,000 500,000 $1,500,000 75,000 1.375,000 $2.950.000 (1) Projected sales are $6,000,000. (2) Cost of goods sold in 2015 includes $1,000,000 in fixed costs. (3) Operating expense in 2015 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 40%. a. Prepare a pro forma income statement for the year ended December 31, 2016. using the fixed cost data given to improve the accuracy of the percent-of-sales method. REQUIREMENTS (4 pts) Do not prepare the entire income statement. Calculate (1) cost of goods sold and (2) operating expenses that will appear on a pro-forma income statement for 2016 b. Prepare a pro forma balance sheet as of December 31, 2016, using the informa tion given and the judgmental approach. Include a reconciliation of the retained earnings account. Do not prepare the entire budgeted balance sheet. Calculate (3) projected accounts receivable and (4) net fixed assets that will appear on a pro forma balance sheet as of 12/31/16

Answer 1

Answer 1:-

Step 1 :- Calculations showing separation of variable and fixed portion of Cost of Goods Sold and Operating Expenses for Year 2015

(a):- Separating Variable and fixed portion of cost of goods sold for Year 2015

Particulars	Amount ($)
Cost of Goods Sold (Total)	$2,750,000
Less:- Cost of Goods Sold (Fixed)	$1,000,000
Cost of Goods Sold (Variable)	$1,750,000

(b) :- Calculating Variable Cost of Goods Sold as a % of sales (Year 2015)

= Cost of Goods Sold (Variable) / Sales Revenue for Year 2015 x 100

= 1750,000 / 5,000,000 x 100

= 35% of Sales

(c) Separating Variable and fixed portion of Operating Expenses for Year 2015

Particulars	Amount ($)
Operating Expenses (Total)	$850,000
Less:- Operating Expenses (Fixed)	$250,000
Operating Expenses (Variable)	$600,000

(d) : - Calculating Variable Operating Expenses as a % of sales (Year 2015)

= Operating Expenses (Variable) / Sales Revenue for Year 2015 x 100

= 600,000 / 5,000,000 x 100

= 12% of Sales

.

Step 2:- Calculations showing Cost of Goods Sold and Operating Expenses as appearing in Income statement for the year 2016

(a) Calculating Cost of Goods Sold as appearing in Income statement for year 2016

Particulars	Amount ($)
Cost of Goods Sold (Variable) -- (35% of Sales) ---- (6,000,000 x 35% = 2,100,000)	$2,100,000
Add:- Cost of Goods Sold (Fixed)	$1,000,000
Add:- Cost of Goods Sold (Total)	$3,100,000

(b) Calculating Operating Expenses as appearing in Income statement for year 2016

Particulars	Amount ($)
Operating Expenses (Variable) -- (12% of Sales) ---- (6,000,000 x 12% = 720,000)	$720,000
Add:- Operating Expenses (Fixed)	$250,000
Add:- Operating Expenses (Total)	$970,000

Answer 2.

a) Accounts Receivable as appearing in Proforma Balance Sheet as on December 31, 2016

= Sales Revenue for Year 2016 x 12.50%

= $6,000,000 x 12.50%

= $750,000

b) Net Fixed Assets as appearing in Proforma Balance Sheet as on December 31, 2016

Particulars	Amount ($)
Net Fixed Asset as on December 31, 2015	$1,400,000
Add:- New Assets Purchased	$356,000
Less:- Depreciation for Year ended 2016	$110,000
Net Fixed Asset as on December 31, 2016	$1,646,000