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IntegrativePro forma statements Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance sheet E) and financial projections for use in preparing financial plans for the coming year (2016) Information related to financial projections for the year 2016 is as follows: (1) Projected sales are $6,005,000. (2) Cost of goods sold in 2015 includes $997,000 in fixed costs. (3) Operating expense in 2015 includes $254,000 in fixed costs. (4) Interest expense will remain unchanged. (5) The firm will pay cash dividends amounting to 45% of net profits after taxes. (6) Cash and inventories will double. (7) Marketable securities, notes payable, long-term debt, and common stock will remain unchanged. (8) Accounts receivable, accounts payable, and other current liabilities will change in direct response to the change in sales. (9) A new computer system costing $354,000 will be purchased during the year. Total depreciation expense for the year will be $107,000. (10) The tax rate will remain at 40% a. Prepare a pro forma income statement for the year ended December 31, 2016, using the fixed cost data given to improve the accuracy of the percent-of-sales method. b. Prepare a pro forma balance sheet as of December 31, 2016, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. c. Analyze these statements, and discuss the resulting external financing required. Provincial Imports, Inc. for the Year Ended December 31, 2016 (percent-of-sales method) Sales Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends (45%) To Retained earnings b. Prepare a pro forma balance sheet as of December 31, 2016, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. NOTE: Taxes payable for 2015 are about 19.5473% of the 2015 taxes on the income statement. The pro forma value is obtained by taking 19.5473% of the 2016 taxes. Complete the assets part of the pro forma balance sheet as of December 31, 2016: (Round to the nearest dollar.) Pro Forma Balance Sheet Provincial Imports, Inc. for the Year Ended December 31, 2016 (Judgmental Method) Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Pro Forma Dalance sheet Provincial Imports, Inc. for the Year Ended December 31, 2016 (Judgmental Method) Accounts payable Taxes payable Notes payable Other current liabilities Total current liabilities Long-term debt Common stock Retained earnings External funds required Total liabilities and stockholders' equity $ c. Using the judgmental approach, the external funds requirement is $ Provincial Imports, Inc. Income Statement for the Year Ended December 31, 2015 Sales revenue $5,008,000 Less: Cost of goods sold 2,746,000 Gross profits $2,262,000 Less: Operating expenses 854,000 Operating profits $1,408,000 Less: Interest expense 193,000 Net profits before taxes $1,215,000 Less: Taxes (rate = 40%) 486,000 Net profits after taxes $729,000 Less: Cash dividends 328,050 To retained earnings $400,950 Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Provincial Imports, Inc. Balance Sheet December 31, 2015 Liabilities and Stockholders' Equity S205,000 Accounts payable $709,000 228,000 Taxes payable 95,000 631,000 Notes payable 206,000 505,000 Other current liabilities 4,900 $1.569,000 Total current liabilities $1,014.900 1,408,000 Long-term debt 518,100 Common stock 70,000 Retained earnings 1,374,000 $2,977,000 Total liabilities and equity $2.977,000 Total assets
