Percent of sales method

The first step in to express the balance of an accounting item in the income statement or balance sheet as a percent of current sales revenue. Then multiply that percentage by the projected sales revenue to arrive the projected amount for an accounting item in the coming year. For example, Graffitis costs were $635,826, which accounted for 88.93% of current years sales revenue ($635,826/$714,978 = 88.93%). The projected costs for the upcoming year will be 88.93% x $822,224.70 (the projected sales revenue) = $731,199.90.

Some of the accounting items expressed as a percentage of sales are meaningless. This is because either the balance of the accounting item remains unchanged or its proportional change does not correspond to the percentage change in sales. We put a n.a. in the percentage column.

We assume that Graffitis dividend payout ratio remains unchanged for the coming year. Given the $16,200 dividends and net income of $51,448.80 from the income statement, we know that its dividend payout ratio is cash dividend / net income = $16,200/$51,448.80 = 31.4876%. This implies that Graffitis retention ratio is 68.5124%, as the sum of the dividend payout and retention ratios equals to 100%.

The textbook provides the formula for the projected retained earnings. The projected retained earnings = The retained earnings from the past year + projected net income projected cash dividends to be paid Therefore, you will use the dividend payout ratio in the calculations.

You will find that the pro forma balance sheet is imbalanced as total assets are not equal to total liabilities and stockholders equity. If the projected total assets exceed projected total liabilities and stockholders equity, this indicates that external financing is needed. Please compute the needed amount from external financing. Explanations for each item have been inserted as comments in the Excel file.

AutoSave tf Project 3 Data (1) Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share Comments Cut Conditional Format as Cell TableStyles Insert Dcletr Fomat Sort &Find Filler Selecl Clear Format painter Bly,H Edring F37 Gralliti Advertising Inc. Balance Sheet As of 12/31/2018 Assets Liabilities and Stockholders' Equity Sales in 2018 711,978 Percentage of Sales Percentage of Sales 6 Current assets Current liabilities Cash $18,098 26,690 28,783 $73,571 Accounts payable Notes payable $13,29/ $20,830 $34,127 192,300 Accounts receivable n.a. 9 Inventory 10 11 Fixed assets 12 Net plant and equipment513,980 13 14 15 Total assets 16 Total n.a Total Long term debt Stockholders' equity 252,787 108,337 361,124 $587,551 Common stock and paid-in surplus Retained earnings Tatal $587,551 Total liabilities and stockholders' equity 18 Graffiti Advertising Inc. Pro Forma Balance Sheet 19 Liabilities and Stockholders' Equity Projected sales in 2019 S822,225 22 Assets 23 24 Current assets Current liabilities ts navahle Income Statement Balance Sheet + 115% 1:36 PM O Type here to search