Sales forecasting and budgeted operating income Refer to the data and analysis from Exercise 5.2. Pendant Corporation earns the difference

(the ’spread’) between its cost of borrowed money to finance the mortgages and the mortgage lending rate that it charges homeowners on these dollar amounts. For example if the spread was 2% Pendant earned (.02) * $9560000 as sales revenue in Year 1. The spread also is earned on the 10% of mortgages held for investment; 90% of mortgages are resold to other institutions during the year. Consider the following additional operating activity data.

Required:
Prepare Pendant’s pro forma statement of income for Year 37.

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Cash Accounts receivable (net) Plant, property & equipment (net) Mortgage assets Total assets Accounts payable Interest payable Short-term debt Long-term debt Owners equity Total equities Estimated annual sales activities and costs Fees per new mortgage (closing costs) Interest spread on mortgages* Uncollectible sales Mortgage resale rate** Mortgage resale earnings rate** Cash sales collection rate (applies to all) $1500000 6000000 12000000 8000000 $27500000 $400,000 1200000 1300000 4000000 20 600000 $27 500000 Year 37 1.75% 2.00% 5.00% 90.00% 1.00% 92.00% Budgeted expenses, expected inflation rate Salaries and wages Advertising Depreciation General administrative Outsourced services Cash payment rate (applies to cash expenses) Minimum cash balance Plant, property and equip purchases+ PPE expected life, years Forecasts (from previous exercise): Annual mortgage lending rate, % $6200000 1300000 600 000 3000 000 1200000 90% 500 000 300000 20 ? ? Annual mortgage sales *The mortgage interest spread is the targeted difference between the cost of borrowed money and the mortgage lending rate (e.g., the gross profit rate). The spread is earned on the average amounts of both new and existing (held) mortgage assets. **Approximately 90% of mortgages are resold to other mortgage companies after one year, with net proceeds to Pendant of 1% of the mortgage value. Purchases of 20 year equipment, paid with cash.