LGS 3-19 Integrative Pro forma statements Provincial Imports, Inc., has assembled statements and information to prepare financial plans for the coming year. Provincial Imports, Inc. Income Statement for the Year Ended December 31, 2003 Sales revenue 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 To retained earings $5,000,000 2.750,000 $2.250.000 850,000 $1,400,000 200.000 $1.200.000 450,000 $ 720,000 288,000 S432.000 Provincial Imports, Inc. Balance Sheet December 31, 2003 Liabilities and Stockholders' Equity Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets $ 200,000 275,000 625,000 500,000 $1,600,000 $1,400,000 $3,000,000 Accounts payable Taxes payable Notes payable Other current liabilities Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity $ 700,000 95,000 200,000 5.000 $1,000,000 $ 500.000 $ 75,000 $1.375,000 $3,000,000 Information related to financial projections for the year 2004: (1) Projected sales are $6,000,000. (2) Cost of goods sold includes $1,000,000 in fixed costs. (3) Operating expense includes $250,000 in fixed costs. (4) Interest expense will remain unchanged. (5) The firm will pay cash dividends amounting to 40% 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 $356,000 will be purchased during the year. Total depreciation expense for the year will be $110,000. a. Prepare a pro forma income statement for the year ended December 31, 2004, using the information given and the percent-of-sales method. b. Prepare a pro forma balance sheet as of December 31, 2004, using the infor- mation given and the judgmental approach. Include a reconciliation of the retained earnings account. c. Analyze these statements, and discuss the resulting external financing required