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P2 Integrative: Pro forma statements. Provincial Imports Inc. has assembled past (2021) financial statements (income statement and balance sheet below) and financial projections for use
P2 Integrative: Pro forma statements. Provincial Imports Inc. has assembled past (2021) financial statements (income statement and balance sheet below) and financial projections for use in preparing financial plans for the coming year (2022). | |||||||||
Provincial Imports Inc. Income Statement for the Year Ended December 31, 2021 | |||||||||
Sales Revenue | $5,000,000 | ||||||||
Less: Cost of goods sold | 2,750,000 | ||||||||
Gross profits | $2,250,000 | ||||||||
Less: Operating expenses | 850,000 | ||||||||
Operating profits | $1,400,000 | ||||||||
Less: Interest expense | 200,000 | ||||||||
Net profits before taxes | $1,200,000 | ||||||||
Less: Taxes (rate = 21%) | 252,000 | ||||||||
Net profits after taxes | $948,000 | ||||||||
Less: Cash dividends | 288,000 | ||||||||
To retained earnings | $660,000 | ||||||||
Provincial Imports Inc. Balance Sheet December 31, 2021 | |||||||||
Assets | Liabilities and stockholders' equity | ||||||||
Cash | $200,000 | Accounts payable | $700,000 | ||||||
Marketable securities | 225,000 | Taxes payable | 95,000 | ||||||
Accounts receivable | 625,000 | Notes payable | 200,000 | ||||||
Inventories | 500,000 | Other current liabilities | 5,000 | ||||||
Total current assets | $1,550,000 | Total current liabilities | $1,000,000 | ||||||
Net fixed assets | 1,400,000 | Long-term debt | 500,000 | ||||||
Total assets | $2,950,000 | Total liabilities | $1,500,000 | ||||||
Common stock | 75,000 | ||||||||
Retained earnings | 1,375,000 | ||||||||
Total liabilities and equity | $2,950,000 | ||||||||
Information related to financial projections for the year 2022 is as follows: | |||||||||
(1) Projected sales are $6,000,000. | |||||||||
(2) Cost of goods sold in 2021 includes $1,000,000 in fixed costs. | |||||||||
(3) Operating expense in 2021 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. | |||||||||
(10) The tax rate will remain at 21%. | |||||||||
a. | Prepare a pro forma income statement for the year ended December 31, 2022, 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, 2022, 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. | ||||||||
Answer - fill in the blue boxes below. | |||||||||
b. | Prepare a pro forma balance sheet as of December 31, 2022, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. | ||||||||
Provincial Imports Inc. Pro Forma Balance Sheet as of December 31, 2022 | |||||||||
Assets | Liabilities and stockholders' equity | ||||||||
Cash | Accounts payable | ||||||||
Marketable securities | $225,000 | Taxes payable | |||||||
Accounts receivable | Notes payable | $200,000 | |||||||
Inventories | Other current liabilities | ||||||||
Total current assets | Total current liabilities | ||||||||
Net fixed assets | Long-term debt | $500,000 | |||||||
Total assets | Total liabilities | ||||||||
Common stock | $75,000 | ||||||||
Retained earnings | |||||||||
External funds required | |||||||||
Total liabilities and equity | |||||||||
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