Question
Preparation of projected statement of income statement The above is the 2012 to 2014 income statement for the company. Consider there is a choice of
Preparation of projected statement of income statement
The above is the 2012 to 2014 income statement for the company. Consider there is a choice of expansion based on the below information, please draft the projected income statement for 2015 based on the below given information.
Expansion of Dessert Goods Line
The expansion would require a $340,000 investment: $125,000 for a 185-square-metre expansion to the building to accommodate a larger production facility, a storage space, and a second office; $95,000 for doughnut- and pastry-making equipment;$100,000 for other equipment, storage racks, and packaging machinery for the fruitcakes; and $20,000 for a used delivery truck to handle the anticipated increase in sales volume. Liambotis had secured pre-approval for a $275,000 long-term loan from the Commercial Bank of Canada(CB) at an annual interest rate of prime1 plus 1 per cent. He was willing to contribute an additional $65,000 interest-free shareholder's loan to help fund the expansion. Liambotis projected that the expansion would increase exposure for the Bakery and that this would result in a 10 per cent increase to the Bakery's existing bread sales. For the first year, doughnut and pastry sales were projected to be$200,000, and fruitcake sales were projected to be half of that amount. Liambotis believed the increased volume would provide for some efficiencies of scale resulting in cost of goods sold remaining at the same percentage of sales.
The proposed expansion would increase some of the Bakery's expenses. Liambotis planned to hire two new full-time bakers (one for the day shift and one for the evening shift) to assist the current baking staff with production of the existing bread lines and the new dessert lines. He also planned to hire one new delivery truck driver to work full-time hours. Holiday fruitcake production would be seasonal and would require seven temporary bakers to work full-time hours during the months of August to November each year. Even with the facility's expansion, the Bakery would not have enough space to store and deliver the holiday fruitcakes. To address this, Liambotis planned to rent a warehouse facility in Toronto for $8,750 a month (for August to November) to store product for delivery to customers in the area. Transportation of products from London to Toronto would cost $350 a trip with an expected 20 trips annually. Liambotis also planned to spend an additional $5,000 a year on advertising to promote the new product lines.
Revenue EXHIBIT 1: THE ITALIAN BAKERY-STATEMENT OF EARNINGS (FOR YEARS ENDING DECEMBER 31) 2014 2013 $ 1,074,553 165,481 1,023,384 161,695 909,072 861,689 23,963 29,804 20,325 20,325 75,000 75,000 584,064 549,120 80,756 80,746 10,763 10,837 20,350 20,350 7,837 7,445 5,867 5,482 6,374 5,768 1,736 1,787 837,035 806.664 72,037 55,025 12,364 15.043 59,673 39,982 12,531 8,396 $ 47.142 $ 31,586 $ EXHIBIT 2: THE ITALIAN BAKERY-STATEMENT OF RETAINED EARNINGS (FOR YEARS ENDING DECEMBER 31) 2014 2013 2012 62,453 47,142 (35,000) 74.595 55,867 31,586 (25,000) 62.453 Total sales Cost of goods sold Gross profit Operating expenses Administrative expenses Amortization Management salary Wages Utilities Advertising Insurance Telephone and Internet Fuel Repairs Miscellaneous Total operating expenses Operating income Interest expense Net earnings before taxes Income taxes Net income after taxes Source: Company files. Beginning retained earnings (Add) Net income (Less) Dividends Ending retained earnings Source: Company files. $ $ $ $ $ 2012 $ $ 984,023 144,651 839,372 28,241 19,349 60,000 514,176 75,874 10,276 19,287 6,854 5,093 6,164 1,884 747,198 92,174 10,167 82,007 17,221 64,786 26,082 64,785 (35,000) 55,867Step by Step Solution
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