FINA 3562 Project 3 Learning objective: Students will learn how to use the percent of sales method to create pro forma income statement and balance sheet. Requirements: Please use Graffitis income statement and balance sheet to create pro forma financial statements for the upcoming year. The data are in this Excel file, Project 3 data.xlsx, on Blackboard. The procedure of the percent of sales method is listed in the paragraph below. Again, please set formulae by referencing to the data in Excel spreadsheets. If you do not meet this requirement, you will be asked to re-work on the project. This project accounts for 4% of your overall grade. Due date: March 8th, 11:59 pm on Blackboard 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, Graffitis costs were $635,826, which accounted for 88.93% of current years sales revenue ($635,826/$714,978 = 88.93%). The projected costs for the upcoming year will be 88.93% x $822,224.70 (the projected sales revenue) = $731,199.90. 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 Graffitis dividend payout ratio remains unchanged for the coming year. Given the $16,200 dividends and net income of $51,448.80 from the income statement, we know that its dividend payout ratio is cash dividend / net income = $16,200/$51,448.80 = 31.4876%. This implies that Graffitis retention ratio is 68.5124%, 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 Therefore, 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 is needed. Please compute the needed amount from external financing. Explanations for each item have been inserted as comments in the Excel file.

Graffiti Advertising Inc. Balance Sheet As of 12/31/2018 Liabilities and Stockholders' Equity Sales in 2018 714,97 Percentage of Sales Percentage of Sales Current assets Current liabilities $18,098 26,690 28,783 $73,571 Accounts payable Notes payable $13,297 $20,830 $34,127 $192,300 Accounts receivable n.a. n.a n.a Total Total Long-term debt Close Full Screen Stockholders' equity Fixed assets Net plant and equipment $ 513,980 Common stock and paid-in surplus Retained earnings $252,787 108,337 $361,124 $587,551 n.a. Total n.a Total assets $587,551 Total liabilities and stockholders equity Graffiti Advertising Inc. Pro Forma Balance Sheet Liabilities and Stockholders' Equity Projected sales in 2019 Current assets Current liabilities Accounts payable Notes payable Accounts receivable Total Long-term debt Stockholders' equity Total Fixed assets Net plant and equipment Common stock and paid-in surplus Retained earnings Total Total assets Total liabilities and stockholders' equity External financing needed Percnt 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, Graffiti's costs were $635,826, which accounted for 88.93% of current year's sales revenue ($635,826/$714,978-88.93%). The projected costs for the upcoming year will be 88.93%x $822,224.70 (the projected sales revenue) $731,199.90. 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 Graffiti's dividend payout ratio remains unchanged for the coming year. Given the $16,200 dividends and net income of $51,448.80 from the income statement, we know that its dividend payout ratio is cash dividend / net income-$16,200/$51,448.80-31.4876%. This implies that Graffiti's retention ratio is 68.5124%, 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 Therefore, 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 is needed. Please compute the needed amount from external financing . Explanations for each item have been inserted as comments in the Excel file. FINA 3562 Project 3 Learning objective: Students will earn how to ue the percent of sales method to create pro forma income statement and balance sheet. Requirements Please use Graffiti's income statement and balance sheet to create pro forma financial statements for the upcoming year. The data are in this Excel file, Project 3 data.xlsx, on Blackboard. The procedure of the percent of sales method is listed in the paragraph below. Again, please set formulae by referencing to the data in Excel spreadsheets. If you do not meet this requirement, you will be asked to re-work on the project. This project accounts for 4% of your overall grade. Due date: March 8th, 11:59 pm on Blackboard 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 Graffiti's costs were $635,826, which accounted for 88.93% of current year's sales revenue ($635,826/$714,978 88.93%). The projected costs for the upcoming year will be 88.93% x $822,224.70 (the projected sales revenue) -$731,199.90. Some of the accounting items expressed as a percentage of sales are meaningless. This is because