Question

1a. Pro Forma Income Statement

Prepare a pro forma income statement and balance sheet for Thibodaux Inc. for 2020.

For the Pro Forma Income Statement 2020:

SALES = increase of 18.25% over 2019, 2019 Sales were $6,765,328

             Gross Profit margin 60%,

There are No Preferred Stock,

OTHER EXP $1,500,000,

Depreciation $500,000,

Interest $600,000,

Taxes 50%,

Common Stock Dividend Payout Ratio 40% of Net Income

2019 Pro Forma IS 2020 Pro Forma IS

                             Thibodaux Inc.                  Thibodaux Inc.

Sales $6,765,328   $8,000,000

Cost of Good Sold

Gross Profit

Other Expenses                      

EBDIT

DEPRECIATION

EBIT

INTEREST

1b. Pro Forma Balance Sheet

For the Pro Forma Balance Sheet 2020: Thibodaux is at full capacity so Net fixed Assets will have to increase at the same percentage as the sales increases (use % of sales).   The Net Fixed Asset should be larger for 2020! Look at Income Statement above for the % increase.

Due to the economy, Average Collection Period increases to 66 days and Inventory Turn-Over is reduced to 7.0.

Use the % of sales for all liabilities that are spontaneous (will increase as sales increase that is Account Payable and Accruals). Look at Income Statement above for the % increase.

The desired cash balance is $450,000.

Remember certain liabilities will also increase automatically (spontaneously) but some will not. Does Net Profit & Long Term Debt increase because there was an increase in Sales? No. A firm has to make a loan or issue more bonds. The firm will do neither.

Use Income Statement from #3 for retained earnings.

Answer 1

1A

PRO FORMA

INCOME STATEMENT OF Thibodaux Inc.

for 2020.

	Particulars	Amount
	Sales	8000,000
Less	Cost of goods sold (b/f)	3200,000
=	Gross profit – 60% of sales(8000,000*60/100)	4800,000
Less	Other expenses	1500,000
=	EBDIT	3300,000
Less	Depreciation	500,000
=	EBIT	2800,000
Less	Interest	600,000
=	EBT	2200,000
Less	Tax – 50%	1100,000
=	Net profit (EAT)	1100,000