Preparing Martin manufacturing's 2015 Pro Forma Financial Statements. To improve its competitive position, Martin Manufacturing is planning to implement a major equipment modernization program. Included will be replacement and modernization of key manufacturing equipment at a cost of $400,000 in 2015. The planned program is expected to lower the variable cost per unit of finished product. Terri Spiro, an experienced budget analyst, has been charged with preparing a forecast of the firm's 2015 financial position, assuming replacement and modernization of manufacturing equipment. She plans to use the 2014 financial statements, along with the key projected financial data summarized in the attached table.
Respond to the following:
1. Use the historical and projected financial data provided to prepare a pro forma income statement for the year ended December 31, 2015
2. Use the projected financial data along with relevant data from the pro forma income statement prepared in part (1) to prepare the pro forma balance sheet at December 31, 2015.
3. Will Martin Manufacturing Company need to obtain external financing to fund the proposed equipment modernization program? Explain.
Martin Manufacturing Company Income Statement
For the Year Ended December 31, 2014
Sales revenue
Less........................................$5,075,000
Cost of goods sold...........................................3,704,000
Gross Profit
Less............................................1,371,000
Operating expenses
Selling expense................................................$650,000
General and administrative expenses.................416,000
Depreciation expense.........................................152,000
Total operating expense..................................1,218,000
Operating profit.................................................153,000
Less: Interest expense..........................................93,000
Net profit before taxes.........................................60,000
Less: Income Taxes.............................................24,000
Net profit.............................................................36,000
Preferred stock dividends of $3,000 were paid.
EPS for common stock is $0.33
Martin Manufacturing Company
Balance Sheet
December 31, 2014
Assets

Current assets:
Cash................................................................$25,000
Accounts receivable......................................$805,556
Inventory........................................................700,625
Total current assets....................................$1,531,181
Gross fixed assets (at cost).......................$2,093,819
Less: Accumulated depreciation....................500,000
Net Fixed assets..........................................1,593,819
Total assets..................................................3,125,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................................$ 230,000
Notes payable................................................311,000
Accruals..........................................................75,000
Total Current Liabilities............................$ 616,000
Long-term debt..........................................1,165,250
Total liabilities............................................1,781,250
Stockholders' Equity
Preferred stock (2,500 shares).........................50,000
Common stock (100,000 Shares @ $4.00)....400,000
Paid in capital................................................593,750
Retained earnings..........................................300,000
Total Stockholders' Eq...............................1,343,750
Total Liabilities & Stockholders' Equity $3,125,000
The firm's 100,000 outstanding shares of common stock closed 2014 at a price of $11.38 Per share.
Data Table: Projected financial data for 2015:
Sales revenue................................................$6,500,000
Minimum cash balance........................................25,000
Inventory turnover (times)........................................7.0
Average collection period 50 days
Fixed-asset purchases.......................................400,000
Total dividend payments....................................20,000
Depreciation expense........................................185,000
Interest expense..................................................97,000
Accounts payable increase.....................................20%
Accruals and long-term debt unchanged
Notes payable, preferred and common stock Unchanged