Balance Sheet ZZZ Mattress Company December 31, 2015 Assets Cash Accounts receivable Inventory Total current assets Net plant and equipment Total assets $ 1,500 60,000 95,000 $156,500 $ 150,000 $306,500 Liabilities and Equities' Accounts payable Notes payable Accruals Total current liabilities Long-term debts Stockholders' equity: Common stock Retained earnings Total liabilities and equities Income Statement ZZZ Mattress Company For the Year Ended December 31, 2015 Sales $300,000 Less: Cost of goods sold 195,000 Gross profit $105,000 Less: Selling expense 40,000 General and administrative expense 11,000 Less: Depreciation 10,000 Operating profit $ 44,000 Less: Interest 12,000 Net profit before taxes $ 32,000 Less: Taxes (40%) 12,800 $ 19,200 $ 45,500 55,000 5,000 $ 105,500 55,000 $ 71,000 75,000 $306,500 The ZZZ Mattress Co. has been requested by the 1st National Bank, a major creditor, to prepare a pro forma balance sheet for the year ending, December 31, 2016. Using the percent-of-sales method and the following financial data, prepare the pro forma income statement and discuss the results. (See the statements above) 2016 sales are estimated at $330,000. Accounts receivable represent 20 percent of sales. A minimum cash balance of $1,650 is maintained. Inventory represents 32 percent of sales. Fixed-asset outlays in 2006 are $20,000. Total depreciation expense for 2016 will be $15,000. Accounts payable represents 15 percent of sales. Notes payable and accruals will remain the same. No long-term debt will be retired in 2016. No common stock will be repurchased in 2016. The firm will pay dividends equal to 50 percent of its earnings after taxes. Balance Sheet ZZZ Mattress Company December 31, 2015 Assets Cash Accounts receivable Inventory Total current assets Net plant and equipment Total assets $ 1,500 60,000 95,000 $156,500 $ 150,000 $306,500 Liabilities and Equities' Accounts payable Notes payable Accruals Total current liabilities Long-term debts Stockholders' equity: Common stock Retained earnings Total liabilities and equities Income Statement ZZZ Mattress Company For the Year Ended December 31, 2015 Sales $300,000 Less: Cost of goods sold 195,000 Gross profit $105,000 Less: Selling expense 40,000 General and administrative expense 11,000 Less: Depreciation 10,000 Operating profit $ 44,000 Less: Interest 12,000 Net profit before taxes $ 32,000 Less: Taxes (40%) 12,800 $ 19,200 $ 45,500 55,000 5,000 $ 105,500 55,000 $ 71,000 75,000 $306,500 The ZZZ Mattress Co. has been requested by the 1st National Bank, a major creditor, to prepare a pro forma balance sheet for the year ending, December 31, 2016. Using the percent-of-sales method and the following financial data, prepare the pro forma income statement and discuss the results. (See the statements above) 2016 sales are estimated at $330,000. Accounts receivable represent 20 percent of sales. A minimum cash balance of $1,650 is maintained. Inventory represents 32 percent of sales. Fixed-asset outlays in 2006 are $20,000. Total depreciation expense for 2016 will be $15,000. Accounts payable represents 15 percent of sales. Notes payable and accruals will remain the same. No long-term debt will be retired in 2016. No common stock will be repurchased in 2016. The firm will pay dividends equal to 50 percent of its earnings after taxes
