Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.
Required
a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate.
b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
c. Explain why two executive officers in the same company could have different estimates of future growth.

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First Quarter Second Quarter Fourth Quarter Third Quarter Total 0 Sales revenue Cost of goods sold Gross profit Selling & admin. expenses Net income $90,000 $100,000 $105,000 $130,000 $425,000 255,000 170,000 42,000 128,000 54,000 36,000 8,500 60,000 40,000 10,000 63,000 42,000 10,500 78,000 52,000 13,000 $27.500 30,000 31,500 $39,000 $1