Information related to financial projections for next year is as follows: (1) Projected sales are $5,990,000. (2) Cost of goods sold last year includes $1,007,000 in fixed costs. (3) Operating expense last year includes $259,000 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 $364,000 will be purchased during the year. Total depreciation expense for the year will be $115,000. (10) The tax rate will remain at 40%. a. Prepare a pro forma income statement for next year, using the fixed cost data given to improve the accuracy of the percent-of-sales method. b. Prepare a pro forma balance sheet for next year, 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. Income Statement for the Year Just Ended Sales revenue $4,990,000 Less: Cost of goods sold 2,748,000 Gross profits $2,242,000 Less: Operating expenses 854,000 Operating profits $1,388,000 Less: Interest expense 209,000 Net profits before taxes $1,179,000 Less: Taxes (rate = 40%) 471,600 Net profits after taxes $707,400 Less: Cash dividends 318,330 To retained earnings $389,070 Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Provincial Imports, Inc. Balance Sheet for the Year Just Ended Liabilities and Stockholders' Equity $198,000 Accounts payable $700,000 217,000 Taxes payable 95,000 632,000 Notes payable 202,000 502,000 Other current liabilities 4,600 $1,549,000 Total current liabilities $1,001,600 1,403,000 Long-term debt 491,400 Common stock 75,000 Retained earnings 1,384,000 $2,952,000 Total liabilities and equity $2,952,000 Total assets Pro Forma Income Statement Provincial Imports, Inc. for Next Year (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 $