Please use KMS Designs income statement and balance sheet to create pro forma financial statements for the upcoming year.

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, KMS costs except depreciation were $58,413, which accounted for 78% of current years sales revenue ($58,413/$74,889 = 78%). The projected costs except depreciation for the upcoming year will be 78% x $89,866.80 (the projected sales revenue) = $70,095.60. 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 KMS dividend payout ratio remains unchanged for the coming year. Given the $2,776.28 dividends and net income of $6,940.70 from the income statement, we know that its dividend payout ratio is cash dividend / net income = $2,776.28/$6,940.70 = 40%. This implies that KMS retention ratio is 60%, 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.

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