. Premium Foods 2019 income statement is shown on the attachment. Notes Payable of $2,500 (amount in thousands) appears on Premium Foods 2019 balance sheet. Premium Foods management has made the following projections and assumptions for 2020:

1) 2020 sales are projected to increase by 10% over their 2019 level.

2) In 2020, the company plans to pay out 50 percent of its Net Income as dividends; the other 50 percent of Net Income will be additions to Retained Earnings, as in 2019.

3) An interest rate of 5 percent applies in 2020 to the debt balance (Notes Payable at the beginning of the year).

4) An income tax rate of 22% applies in 2020, as in 2019.

Construct the projected 2020 income statement using the Forecasted Financial Statements (FFS) method. Assume the firm operated at full capacity in 2019.

E Projected 2020 EBT A B D 1 2 Premium Foods, Inc. 3 Pro Forma Income Statement 4 For the Year Ended December 31, 2020 5 (Thousands of Dollars) 6 7 % of 8 2019 Sales Forecast Basis 9 Sales 7,000 10 Operating costs 3,000 11 EBIT 4,000 12 Less: Interest 200 13 3,800 14 Less: Taxes @ 22% 836 15 Net Income 2,964 16 Dividends 1,482 50% of "Net Income 17 Addition to Retained Earnings 1,482 Net Income - Dividends 18 19 20 21 2020 Projected "Interest Expense:" 22 23 Assume that "Notes Payable" remains at its 2019 level. 24 A 5% annual interest rate applies to debt 25 outstanding in "Notes Payable" as of January 1, 2020. 26 27 28 29 Notes Payable 2,500 30 X 5% annual rate 31 Projected 2020 "Interest Expense" 32