FILL IN THE BLANKS

Percent of sales method The first step in to express the balance of an accounting item in the income statement or balance sheet as a percent of current sales revenue. Then multiply that percentage by the projected sales revenue to arrive the projected amount for an accounting item in the coming year. For example, Rosengartens costs were $800, which accounted for 80% of current years sales revenue ($800/$1,000 = 80%). The projected costs for the upcoming year will be 80% x $1,250 (the projected sales revenue) = $1,000. Some of the accounting items expressed as a percentage of sales are meaningless. This is because either the balance of the accounting item remains unchanged or its proportional change does not correspond to the percentage change in sales. We put a n.a. in the percentage column. We assume that Rosengartens dividend payout ratio remains unchanged for the coming year. Given the $44 dividends and net income of $132 from the income statement, we know that its dividend payout ratio is cash dividend / net income = $44/$132 = 33.33%. This implies that Rosengartens retention ratio is 66.67%, as the sum of the dividend payout and retention ratios equals to 100%. The textbook provides the formula for the projected retained earnings. The projected retained earnings = The retained earnings from the past year + projected net income projected cash dividends to be paid So you will use the dividend payout ratio in the calculations. You will find that the pro forma balance sheet is imbalanced as total assets are not equal to total liabilities and stockholders equity. If the projected total assets exceed projected total liabilities and stockholders equity, this indicates that external financing are needed. Please compute the needed amount from external financing.

Rosengarten Corporation Income Statement For the year of 2015 Rosengarten Corporation Proformalncome Statement For the year of 2016 4 5 Sales 6 Costs 7 Taxable income 8 Taxes (34%) 9 Net income 10 Dividends 11 Addition to retained earnings Percentage of Sales $1,000 800 200 Sales (projected) Costs Taxable income Taxes (34%) Net income n.a n.a 132