6. The financial statements for The English Leather Company are reproduced below. You are given the following information about the coming year. Prepare Pro Forma statements for the company for next year.

• Sales are expected to increase by 10% and COGS will be 65% of sales
• GA&S will remain at the same level and the cash level will remain the same.
• Depreciation expense will be $91,000 and the company will add $170,000 of new assets and dispose of (sell) assets with book values of $30,000. The selling price of the sold assets will be equal to book value and therefore, there will be no tax effects.
• The tax rate will be 40%
• The company paid $500,000 in dividends in 2010 and will pay the same dividend next year.
• AR will be reduced to 35 days worth of sales. Inventory management improvements will reduce inventories to 55 days of COGS. Accounts payable will remain at 30 days of COGS. The company uses a 360 day year in its calculations.
• Accruals will be 1% of sales
• The company is not allowed to borrow any more by way of long-term debt. Instead, any additional borrowing will come out of notes payable. The interest rate on long-term debt is 8%, while the interest rate on notes payable is 10%.

Balance Sheets (in $000s) Income Statement Today Today Assets Cash Accounts receivable Inventories Total Current Assets 100 275 242 617 2200 1452 748 470 83 195 Gross Fixed Assets Less: Acc. Depreciation Net Fixed Assets Sales Cost of goods sold Gross margin GA&S Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes Taxes (40%) Net income 1200 525 675 60 135 54 Total Assets 1292 81 Liabilities & Owners' Equity Accounts Payable 121 Notes Payable 100 Accruals 22 Total Current Liabilities Long-term Debt (8%) Common Stock Retained Earnings Total Equity Total Liabilities & Equity 625 120 304 424 1292 Balance Sheets (in $000s) Income Statement Today Today Assets Cash Accounts receivable Inventories Total Current Assets 100 275 242 617 2200 1452 748 470 83 195 Gross Fixed Assets Less: Acc. Depreciation Net Fixed Assets Sales Cost of goods sold Gross margin GA&S Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes Taxes (40%) Net income 1200 525 675 60 135 54 Total Assets 1292 81 Liabilities & Owners' Equity Accounts Payable 121 Notes Payable 100 Accruals 22 Total Current Liabilities Long-term Debt (8%) Common Stock Retained Earnings Total Equity Total Liabilities & Equity 625 120 304 424 1292