Question

Create two years (2020 and 2021) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing, and financing sections for 2020 only.

Additional Information:

• The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
• Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
• Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
• Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
• Interest is 10% of long-term debt and notes payable
• Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
• Any cash over $500,000 is put in marketable securities, Interest income is negligible
• Other current liabilities are stable.
• Taxes payable are equal to one-half of the current year’s taxes.
• Assume sales will increase 10% per year for each of the next two years

Income Statement - 2019
Sales Revenue 10,000 units at $250 each	2,500,000.00
Cost of Goods Sold ($100 per unit)	(1,000,000.00)
Gross Profit	1,500,000.00
Operating Expenses	(500,000.00)
Operating Profit	1,000,000.00
Interest Expense	(200,000.00)
Net profits before taxed	800,000.00
Taxes (30%)	(240,000.00)
Net profits after tax	560,000.00
Dividends on common stock	224,000.00
Balance Sheet - 2019
Assets	500,000.00
Marketable Securities	300,000.00
accounts receivable	500,000.00
inventory	400,000.00
total current assets	1,700,000.00
net fixed assets	2,000,000.00
total assets	3,700,000.00
Liabilities and equity
accounts payable	150,000.00
taxes payable	120,000.00
notes payable	200,000.00
other current liabilities	200,000.00
total current liabilities	670,000.00
Long term debt	1,800,000.00
total liabilities	2,470,000.00
common stock	500,000.00
retained earnings	730,000.00
total liabilities and equity	3,700,000.00

Answer 1

C D F G H к N O р Proforma Income Statements 2020 Proforma Balance Sheet 2020 2021 Proforma Cash flow Statement 2020 2021 2019 2021 2019 Amount $ 25,00,000.00 $-10,00,000.00 $ 15,00,000.00 $ -5,00,000.00 Operating Activites Net Profit before Tax Add: Depreciation Add: Interest Paid $ S 9,40,000.00 2,00,000.00 1,80,000.00 $ $ $ 10,92,000.00 2,00,000.00 1,60,000.00 $ $ Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Operating Profit Interest Expense Net Profit before taxes Taxes (30%) Net Profits after Tax $ 27,50,000.00 $-11,00,000.00 $ 16,50,000.00 $ -5,30,000.00 $ 11,20,000.00 $ -1,80,000.00 $ 9,40,000.00 $ -2,82,000.00 $ 6,58,000.00 $ 30,25,000.00 $ -12,10,000.00 $ 18,15,000.00 $ -5,63,000.00 $ 12,52,000.00 $ -1,60,000.00 $ 10,92,000.00 $ -3,27,600.00 $ 7,64,400.00 Assets Cash Marketable Securities Accounts Receivable Inventory Total Current Assets Net Fixed Assets Total Assets 5,00,000.00 3,00,000.00 5,00,000.00 4,00,000.00 17,00,000.00 20,00,000.00 37,00,000.00 $ $ $ $ $ $ $ 5,00,000.00 $ 6,60,800.00 $ 5,50,000.00 $ 4,20,000.00 $ 21,30,800.00 $ 18,00,000.00 $ 39,30,800.00 $ 5,00,000.00 8,82,740.00 6,05,000.00 4,41,000.00 24,28,740.00 16,00,000.00 40,28,740.00 $ $ $ $ -2,00,000.00 $ 8,00,000.00 $ -2,40,000.00 $ 5,60,000.00 Working Capital Adjustments Increase in AR Increase in Inventory Increase in Accounts Payable -50,000.00 -20,000.00 15,000.00 12,65,000.00 -2,61,000.00 10,04,000.00 $ $ $ $ $ $ 55,000.00 -21,000.00 16,500.00 13,92,500.00 -3,04,800.00 10,87,700.00 Dividend on Common Stock (40%) $ 2,24,000.00 $ 2,63,200.00 $ 3,05,760.00 Less: Taxes Paid Cash flow from Operating Activities $ 18 Liabilities and equity Accounts Payable Taxes Payable Notes Payable Other Current Liabilities Total Current Liabilities Long term Debt Total Liabilities Common Stock Retained Earnings Total Liabilities and Equity $ 1,50,000.00 1,20,000.00 2,00,000.00 2,00,000.00 6,70,000.00 18,00,000.00 24,70,000.00 5,00,000.00 7,30,000.00 $ $ $ $ $ $ $ $ $ 1,65,000.00 $ 1,41,000.00 $ 2,00,000.00 $ 2,00,000.00 $ 7,06,000.00 $ 16,00,000.00 $ 23,06,000.00 $ 5,00,000.00 $ 11,24,800.00 $ 1,81,500.00 1,63,800.00 2,00,000.00 2,00,000.00 7,45,300.00 14,00,000.00 21,45,300.00 5,00,000.00 15,83,440.00 19 Note 1 % of COGS to sales 20 Note 2 Operating Expenses- Fixed Operating Expenses- Variable 22 % of Variable to Sales $ 40.00% 2,00,000.00 3,00,000.00 12.00% Financing Activites Repayment of Long term Debt Interest Paid Dividend Paid Cash flow from financing Activities 40.00% 2,00,000.00 3,30,000.00 12.00% -2,00,000.00 -1,80,000.00 -2,63,200.00 -6,43,200.00 $ $ $ $ $ $ 40.00% 2,00,000.00 3,63,000.00 12.00% -2,00,000.00 -1,60,000.00 -3,05,760.00 -6,65,760.00 $ $ $ $ 21 $ $ 23 Investing Activites 24 Note 3 Long term Debt Notes Payable Interest Expense % of Interest on LTD & Notes Payable $ 18,00,000.00 $ 2,00,000.00 $ 2,00,000.00 10.00% $ 16,00,000.00 $ 2,00,000.00 $ 1,80,000.00 10.00% $ 14,00,000.00 $ 2,00,000.00 $ 1,60,000.00 10.00% Changes in CCE during the period $ Beginning- Cash and Cash Equivalent $ Ending- Cash and Cash Equivalent $ 3,60,800.00 $ 8,00,000.00 $ 11,60,800.00 $ 4,21,940.00 11,60,800.00 15,82,740.00 Note 4: % of AR to Sales Note 5: % of AP to COGS 20.00% 15.00% 20% 15% 20% 15%

G H N Proforma Income Statements 2021 Proforma Balance Sheet 2020 2021 Proforma Cash flow Statement 2020 2021 2020 2019 =E11 Operating Activites Net Profit before Tax Add: Depreciation Add: Interest Paid =F11 =F20 =-F10 --E10 Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Operating Profit Interest Expense Net Profit before taxes Taxes (30%) Net Profits after Tax 2019 Amount 2500000 -1000000 =SUM(C5:06) -500000 =SUM(C7:08) -200000 =SUM(C9:010) --C11*30% =SUM(C11:012) =C5*110% --E5*40% =SUM(E5:E6) --(E20+E21) =SUM(E7:E8) --E26 =SUM(E9:E10) --E11*30% =SUM(E11:E12) =E5*110% --F5*40% =SUM(F5:F6) =-(F20+F21) |ESUM(F7:F8) =-F26 ESUM(F9:F10) --F11*30% =SUM(F11:F12) Assets Cash Marketable Securities Accounts Receivable Inventory Total Current Assets Net Fixed Assets Total Assets 500000 300000 500000 400000 =SUM(15:18) 2000000 =SUM(19:110) 500000 =3930800-3270000 =E5*K27 =18*105% =SUM(K5:K8) =110-E20 =SUM(K9:K10) 500000 =L23-3346000 =F5*L27 =K8*105% =SUM(L5:L8) =K10-F20 =SUM(L9:L10) Working Capital Adjustments Increase in AR Increase in Inventory Increase in Accounts Payable --(K7-17) =-(L7-K7) --(K8-18) =-(L8-K8) =K14-114 =L14-K14 =SUM(05:012) =SUM(P5:P12) =-(115+(-E12/2)) =-(K15+(-F12/2)) -SUM(O13:014) =SUM(P13:P14) Dividend on Common Stock (40%) =C13*40% =E13*40% =F13*40% Less: Taxes Paid Cash flow from Operating Activities Liabilities and equity Accounts Payable 150000 Taxes Payable 120000 Notes Payable 200000 Other Current Liabilities 200000 Total Current Liabilities =SUM(114:117) Long term Debt 1800000 Total Liabilities =SUM(118:119) Common Stock 500000 Retained Earnings 730000 Total Liabilities and Equity =SUM(120:122) --E6*K28 --E12/2 200000 200000 =SUM(K14:K17) =E24 18 19 Note 1 % of COGS to sales 20 Note 2 Operating Expenses- Fixed 21 Operating Expenses- Variable 22 % of Variable to Sales --F6*L28 --F12/2 200000 200000 =SUM(L14:L17) =F24 =SUM(L18:L19) 500000 =K22+F13-F15 SUM(L20:L22) --07 =ABS(C6/C5) 200000 =500000-C20 =C21/C5 Financing Activites Repayment of Long term Debt Interest Paid Dividend Paid Cash flow from financing Activities =ABS(E6/E5) 200000 =E5*C22 =E21/E5 -F15 =ABS(F6/F5) 200000 =F5*C22 =F21/F5 -200000 -200000 --P7 --E15 =SUM(O18:020) =SUM(P18:P20) 500000 =122+E13-E15 =SUM(K20:K22) Investing Activites 1800000 Notes Payable 200000 Interest Expense =(C24+C25) *10% % of Interest on LTD & Notes Payable 0.1 =C24-200000 200000 =(E24+E25)*10% =E24-200000 200000 = (F24+F25)*10% 0.1 Changes in CCE during the period =015+021 =P15+P21 Beginning- Cash and Cash Equivalent =15+16 =K5+K6 Ending- Cash and Cash Equivalent =SUM(025:026) =SUM(P25:P26) 0.1 Note 4: % of AR to Sales Note 5: % of AP to COGS =17/05 =114/-C6 0.2 0.15 0.25 0.2 0.15 0.25

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