Question

Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2019, for Hennesaw Lumber, Inc. Hennesaw Lumber, Inc. estimates that its sales in 2019 wil 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 2019. Hennesaw Lumber Inc.'s income statement for the year ended December 31, 2018 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions. Table 4.4 Income Statement Hennesaw Lumber, Inc For the Year Ended December 31, 2018 Sales Revenue Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense Net profits before taxes Less: Taxes (21% ) Net profits after taxes Less: Cash dividends $4,200,000 3.570.000 $ 630,000 210.000 $ 420,000 105.000 S 315,000 66.150 $ 248,850 120.000 $ 128,850 To: Retained eamings The pro forma net profits after taxes for 2019 are (See Table 4.4 ) OA $207,000 OB. $272.550 OC. $57,000 D. $122,550

pro forma net profits after taxes for 2019 needed,pro forma cost of good sold for 2019 needed, pro forma operating expenses for 2019 needed

Answer 1

А В D 1 2 Income Statement Sales revenue 4500000 3825000 Less: Cost of goods sold Gross profits Less: Operating expense Operating profit Less: Interest expense Net profit before tax Less: Taxes @21% Net profit after taxes Less: Cash dividend To retained earnings 4 5 675000 6 225000 450000 7 8 105000 9 345000 10 72450 11 272550 12 150000 13 122550 14 15 Pro forma net profits after taxes for 2019 $272,550. 16 17 Pro forma cost of goods sold for 2019 $3,825,000 18 19 Pro forma operating expenses for 2019 $225,000 20 21 22

Excel formula:

А В С 1 2 Income Statement Sales revenue 4500000 -3570000*C3/4200000 Less: Cost of goods sold Gross profits Less: Operating expense Operating profit Less: Interest expense Net profit before tax Less: Taxes @21% Net profit after taxes Less: Cash dividend To retained earnings |ЕС3-С4 210000*4500000/4200000 6 7 ЕC5-Сб 105000 8 9 C7-C8 C9*21% -C9-C10 10 11 12 150000 13 -C11-C12 14 15 Pro forma net profits after taxes for 2019 $272,550. 16 17 Pro forma cost of goods sold for 2019 = $3,825,000 18 19 Pro forma operating expenses for 2019 $225,000 20 21 4 LC LO