2) Income Statement

Huddleston Manufacturing Company For the Year Ended December 31, 2015

Sales

Less: Cost of goods sold Gross profits

Less: Operating expenses Operating Profits

Less: Interest expense Net profits before taxes Less: Taxes (40%)

Net profits after taxes Less: Cash Dividends To: Retained earnings

$2,800,000 1,820,000 $ 980,000 240,000

$ 740,000 70,000

$ 670,000 268,000 $ 402,000 132,000 $ 270,000

Huddleston Manufacturing estimates its sales in 2016 will be $3 million. Interest expense is expected to remain unchanged at $70,000, and the firm plans to pay cash dividends of $140,000 during 2016. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016, based on the 2015 income statement shown above.