First Tube Inc. is considering a process improvement to increase its sales by 28%. This investment would be financed by a short-term note payable of $66,750 from the Bank of First Citizens. To determine if the increase in sales is worth the added debt, complete the following:

Prepare a pro forma income statement no new capital asset purchases required 28% increase in sales COGS are 60% of sales Sales and Administrative expenses are $82,132 Interest expense is 4% of sales Tax expense is 25% of Earnings before taxes.

20XX 20XW

Current assets

Cash ? $20,000

Accounts receivable ? 28,000

Inventories ? 64,500

Total current assets 0 112,500

Land ? 44,500

Buildings and equipment ? 155,000

Less: accumulated amortization -85,000 -62,000

Total assets ($85,000) $250,000

Current liabilities

Accounts payable ? $23,250

Notes payable ? 37,750

Total current liabilities 0 61,000

Long term debt/Bonds Payable ? 64,000

Common stock 70,000 70,000

Retained earnings 58,730 55,000

Total liabilities and equity $128,730 $250,000

INCOME STATEMENT:

20XX 20XW 20XV

Sales ? $277,500 $241,304

Cost of goods sold ? 166,500 144,783

Gross profit 0 111,000 96,522

Sales and admin expense ? 74,370 74,370

Amortization 23,000 10,000 10,000

Operating income -23,000 26,630 12,152

Interest ? 6,800 6,800

Earnings before taxes -23,000 19,830 5,352

Taxes ? 4,958 1,338

Net income ($23,000) $14,872 $4,014