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Pro Forma Income Statement for the Year Ended December 31, 2013 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense and general and administrative expense Depreciation expense Total operating expenses Operating profits Less. Interest expense Net profits before taxes Less: Taxes (40%) Total profits after taxes 100.0% \begin{tabular}{|lr|} \hline \multicolumn{2}{|c|}{ Martin Manufacturing Company Key Projected Financial Data (2013) } \\ Data item & Value \\ \hline Sales revenue & $6,500,000 \\ Minimum cash balance & $25,000 \\ Inventory turnover (times) & 7.0 \\ Average collection period & 50 days \\ Fixed-asset purchases & $400,000 \\ Total dividend payments (preferred and common) & $20,000 \\ Depreciation expense & $185,000 \\ Interest expense & $97,000 \\ Accounts payable increase & 20% \\ Accruals and long-term debt & Unchanged \\ Notes payable, preferred and common stock & Unchanged \\ \hline \end{tabular} Data table (Click on the icon located on the top-right comer of the data table below in order to copy its content into a spreadsheet.) \begin{tabular}{|lr|} \hline \multicolumn{2}{|c|}{ Martin Manufacturing Company Key Projected Financial Data (2013) } \\ \hline Data item & Value \\ \hline Sales revenue & $6,500,000 \\ \hline Minimum cash balance & $25,000 \\ Inventory turnover (times) & 7.0 \\ Average collection period & 50 days \\ Fixed-asset purchases & $400,000 \\ Total dividend payments (preferred and common) & $20,000 \\ Depreciation expense & $185,000 \\ Interest expense & $97,000 \\ Accounts payable increase & 20% \\ Accruals and long-term debt & Unchanged \\ Notes payable, preferred and common stock & Unchanged \\ \hline \end{tabular} Martin Manufacturing Company Balance Sheets Preparing Martin Manufacturing's 2013 Pro Forma Financial Statements To improve its competitive position, Martin Manufacturing is planning to implement a major equipment modernization program. Included will be replacement and modernization of key manufacturing equipment at a cost of $400,000 in 2013 . The planned program is expected to lower the variable cost per unit of finished product. Terri Spiro, an experienced budget analyst, has been charged with preparing a forecast of the firm's 2013 financial position, assuming replacement and modernization of manufacturing equipment She plans to use the 2012 financial statements , along with the key projected financial data summarized in the following table To Do a. Use the historical and projected financial data provided to prepare a pro forma income statement for the year ended December 31,2013 (Hint Use the percent-of-sales method to estimate all values except depreciation expense and interest expense, which have been estimated by management and included in the table .) b. Use the projected financial data along with relevant data from the pro forma income statement prepared in part (a) to prepare the pro forma balance sheet at December 31, 2013. (Hint: Use the judgmental approach.) c. Will Martin Manufacturing Company need to obtain external financing to fund the proposed equipment modernization program? Explain
