Exercise 14-15A (Algo) Preparing pro forma income statements with different assumptions LO 14-6

Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
Sales revenue	$	189,000			$	219,000			$	229,000			$	279,000			$	916,000
Cost of goods sold		113,400				131,400				137,400				167,400				549,600
Gross profit		75,600				87,600				91,600				111,600				366,400
Selling & administrative expenses		18,900				21,900				22,900				27,900				91,600
Net income	$	56,700			$	65,700			$	68,700			$	83,700			$	274,800

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue.

Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 10 percent for each respective quarter above last years level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required

A/ Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadas estimate.

B/ Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks estimate.

please pay attention to little mistakes and please explain how it was done with the math shown.

Thank you.