Question

A Number Styles fa b) Monroe Products plans to purchase $100,000 of fixed assets in 2020, but will not dispose of any existing fixed assets. What should be its forecast for endi B D F G L M Assignment 4.4 Exercises Problem 1: Creating Proforma Financial Statements 5 Points A pro forma Income Statement for Monroe Products Co. is displayed below: Monroe Products Company Income Statements, 2019 and Pro Forma 2020 Years Ended December 31st 2020 2019 Actual Forecast Net Sales $1,000,000 $1,250,000 Cost of Goods Sold 800,000 1,000,000 Gross Profit $ 200,000 $ 250,000 Operating Expenses Depreciation Expense Operating Income (EBIT) 100,000 50,000 50,000 $ 125,000 62,500 62400 $ Interest Expense Taxable income $ 10,000 40,000 $ 12,500 50,000 Income Tax Expense 15,000 18,750 Net Income $ 25,000 $ 31,250 Use the information given to construct the Pro Forma Balance Sheet for 2020. a) Sales growth is projected to be 25% in 2020, and Current Assets is expected to grow with Sales. What should Current Assets be in 2020? b) Monroe Products plans to purchase $100,000 of fixed assets in 2020, but will not dispose of any existing fixed assets. What should be its forecast for ending Net Fixed Assets in 2020? c) If Monroe Products pays out 40% of its Net Income in 2020 (payout ratio) and will neither sell nor repurchase equity during the year, what should its forecast for owner's equity be at the end of 2020? d) Given all the above information, What is Monroe Products' projected external funding required for 2020? Use the Template Provided Below to Create Your Solution - Be sure to show or explain your work to get full credit! Input/Output area Monroe Producte Camnanu #3 #1 #4 #6 #2 #5 #7 #8

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Answer 1

	2019	2020	Remarks		2019	Common	Remarks
		Forecast				Size
Current asset	$500,000	$625,000	Note 1	Current liabilities	$200,000	$250,000
Net fixed assets	$400,000	$437,500	Note 2	Long term debts	$100,000	$125,000
				Owner's equity	$600,000	$618,750	Note 3
Total assets	$900,000	$1,062,500		Total liabilities and Owner's equity	$900,000	$993,750
				External financing needed:	$68,750	Note 4

Note 1

Current asset

Particulars	Amount	Remarks
Current asset for 2019	$500,000
Add: expected 25% growth	$125,000	(500000*25%)
Current asset for 2020	$625,000

As per point 'a', current asset is expected to grow with sales. Since, the sales have grown by 25% of last year's sales, current asset will also grow 25% of last years current asset.

Note 2

Net fixed assets

Particulars	Amount	Remarks
Net fixed assets for 2019	$400,000
Add: expected purchase during the year	$100,000	point 'b' of the question
Less: Depreciation expense of 2020	($62,500)	As per pro forma 2020 income statement
Net fixed assets for 2020	$437,500

Note 3

Owner's equity

Particulars	Amount	Remarks
Owner's equity for 2019	$600,000
Add: Net income for 2020	$31,250	As per pro forma 2020 income statement
Less: Payout @40% of net income for 2020	($12,500)	point 'c' of the question i.e. (-40%*3120)
Owner's equity for 2020	$618,750

Note 4

External financing needed:

Particulars	Amount
Total assets Forecast for 2020	$1,062,500
Less: Total liabilities and Owner's equity Forecast for 2020	($993,750)
External financing needed for 2020:	$68,750

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