Question

Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 30,100 Assets $ 21,050 Debt $ 6,550 Costs 24,380 Equity 14,500 Net income $ 5,720 Total $ 21,050 Total $ 21,050 The company has predicted a sales increase of 14 percent. It has predicted that every item on the balance sheet will increase by 14 percent as well. Create the pro forma statements and reconcile them. (Input all answers as positive values. Do not round intermediate calculations.) What is the plug variable?

Answer 1

The plug variable is “dividends paid “in the amount of “4,490.80”

Proforma Income Statement
Sales [$30,100 x 114%]	$34,314.00
Costs [$24,380 x 114%]	$27,793.20
Net Income	$6,520.80

Pro forma Balance Sheet
Assets [$21,050 x 114%]	$23,997.00	Debt [$6,550 x 114%]	$7,467.00
		Equity [$14,500 x 114%]	$16,530.00
Total	$23,997.00	Total	$23,997.00

Calculation of Dividend Paid

Equity increased = $16,530.00 – 14,500.00 = $2,030.00

Net income is $6,520.80, but Equity increased only by $2,030.00

Therefore, Dividend Paid = $6,520.80 – 2,030.00 = $4,490.80

“Hence, The Plug Variable = Dividends paid = $4,490.80”