Assignment

You are a consultant, external to this firm.Create two years (2020 and 2021) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing and financing sections for 2020 only.

Techno Corporation

Techno Corp

Income Statement

Actual results 2019 for 12 months ending December 31, 2019

Sales revenue (10,000 units at $250 each) $2,500,000

Cost of goods sold ($100 per unit) -$1,000,000

Gross profit $1,500,000

Operating expenses -$500,000

Operating profit $1,000,000

Interest expense -$200,000

Net profits before taxes $800,000

Taxes (30%) -$240,000

Net profits after tax $560,000

Dividends on common stock $224,000

Techno Corp

Balance Sheet

December 31, 2019

ASSETS $500,000

Marketable securities $300,000

Accounts receivable $500.000

Inventory $400,000

Total current assets $1,700,000

Net fixed assets $2,000,000

Total assets $3,700,000

LIABILITIES AND STOCKHOLDER'S EQUITY

Accounts payable $150,000

Taxes payable $120,000

Notes payable (long-term debt due within one year) $200,000

Other current liabilities $200,000

Total current liabilities $670,000

Long-term debt $1,800,000

Total liabilities $2,470,000

Common stock $500,000

Retained earnings $730,000

Total liabilities and stockholder's equity $3,700,000

Techno Corporation Paper

Techno Corporation is developing its pro forma financial statement forecasts for 2020 and 2021. Its actual results for 2019 are shown in the income statement and balance sheet.

Background

• The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
• Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
• Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
• Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
• Interest is 10% of long-term debt and notes payable
• Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
• Any cash over $500,000 is put in marketable securities, Interest income is negligible
• Other current liabilities are stable.
• Taxes payable are equal to one-half of the current year's taxes.
• Assume sales will increase 10% per year for each of the next two years.