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. 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 Complete the pro forma income statement for the year ended December 31, 2013 below: (Round the dollar amounts to the nearest dollar. Round the percentages of sale to four decimal places. NOTE: Make sure you use the rounded amounts to performed the proceeding calculations.) 100.0 % Martin Manufacturing Company 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 b. Complete the assets section of the pro forma balance sheet at December 31, 2013 below: (Round the to the nearest dollar.) Martin Manufacturing Company Pro Forma Balance Sheet December 31, 2013 Assets Current assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Complete the liabilities and stockholders' equity section of the pro forma balance sheet at December 31, 2013 below: (Round the to the nearest dollar.) Martin Manufacturing Company Pro Forma Balance Sheet (Cont'd) December 31, 2013 Liabilities and stockholders' equity Current liabilities Martin Manufacturing Company Pro Forma Balance Sheet (Cont'd) December 31, 2013 Liabilities and stockholders' equity Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debts Total liabilities Stockholders' equity Preferred stock Common stock (at par) Paid-in capital in excess of par Retained earnings Total stockholders' equity External funds required Total liabilities and stockholders' equity c. Will Martin Manufacturing Company need to obtain external financing to fund the proposed equipment modernization program? Explain. (Select the best choice below.) O A. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $210,000 ($205,764) in external financing in order to undertake its construction program. O B. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $190,000 ($185,764) in external financing in order to undertake its construction program. OC. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $200,000 ($195,764) in external financing in order to undertake its construction program. OD. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $225,000 ($225,000) in external financing in order to undertake its construction program. Cotor n umber in the edit field and then continue to the nort action i Data Table - X Eation program. Included will be replacement and modernization of key manufacturing equipment at a cost of $400,000 in 2 financial position, assuming replacement and modernization of manufacturing equipment. She plans to use the 2012 financi - (Click on the icon o located on the top-right corner of the data table below in order to copy its content into a spreadsheet.) e all values except depreciation expense and interest expense, which have been estimated by management and included in e the judgmental approach.) $5,075,000 3,704,000 $1,371,000 0 Data Table Martin Manufacturing Company Income Statement for the Year Ended December 31, 2012 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense $650,000 General and administrative expenses 416,000 Depreciation expense 152,000 Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders Earnings per share (EPS) 1,218,000 $153,000 93,000 $60,000 24,000 $36,000 3,000 $33,000 $0.33 Martin Manufacturing Company Key Projected Financial Data (2013) Data item Value 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 und Martin Manufacturing Company Balance Sheets December 31, 2012 Assets Current assets Cash Accounts receivable Inventories Total current assets Gross fixed assets at cost) Less: Accumulated depreciation Ma Print Done $25,000 805,556 700,625 $1,531,181 $2,093,819 500,000 ction prog ction program ction program ction program. Print Done 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. 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 Complete the pro forma income statement for the year ended December 31, 2013 below: (Round the dollar amounts to the nearest dollar. Round the percentages of sale to four decimal places. NOTE: Make sure you use the rounded amounts to performed the proceeding calculations.) 100.0 % Martin Manufacturing Company 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 b. Complete the assets section of the pro forma balance sheet at December 31, 2013 below: (Round the to the nearest dollar.) Martin Manufacturing Company Pro Forma Balance Sheet December 31, 2013 Assets Current assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Complete the liabilities and stockholders' equity section of the pro forma balance sheet at December 31, 2013 below: (Round the to the nearest dollar.) Martin Manufacturing Company Pro Forma Balance Sheet (Cont'd) December 31, 2013 Liabilities and stockholders' equity Current liabilities Martin Manufacturing Company Pro Forma Balance Sheet (Cont'd) December 31, 2013 Liabilities and stockholders' equity Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debts Total liabilities Stockholders' equity Preferred stock Common stock (at par) Paid-in capital in excess of par Retained earnings Total stockholders' equity External funds required Total liabilities and stockholders' equity c. Will Martin Manufacturing Company need to obtain external financing to fund the proposed equipment modernization program? Explain. (Select the best choice below.) O A. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $210,000 ($205,764) in external financing in order to undertake its construction program. O B. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $190,000 ($185,764) in external financing in order to undertake its construction program. OC. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $200,000 ($195,764) in external financing in order to undertake its construction program. OD. Based on the pro forma financial statements prepared above, Martin Manufacturing will need to raise about $225,000 ($225,000) in external financing in order to undertake its construction program. Cotor n umber in the edit field and then continue to the nort action i Data Table - X Eation program. Included will be replacement and modernization of key manufacturing equipment at a cost of $400,000 in 2 financial position, assuming replacement and modernization of manufacturing equipment. She plans to use the 2012 financi - (Click on the icon o located on the top-right corner of the data table below in order to copy its content into a spreadsheet.) e all values except depreciation expense and interest expense, which have been estimated by management and included in e the judgmental approach.) $5,075,000 3,704,000 $1,371,000 0 Data Table Martin Manufacturing Company Income Statement for the Year Ended December 31, 2012 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense $650,000 General and administrative expenses 416,000 Depreciation expense 152,000 Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders Earnings per share (EPS) 1,218,000 $153,000 93,000 $60,000 24,000 $36,000 3,000 $33,000 $0.33 Martin Manufacturing Company Key Projected Financial Data (2013) Data item Value 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 und Martin Manufacturing Company Balance Sheets December 31, 2012 Assets Current assets Cash Accounts receivable Inventories Total current assets Gross fixed assets at cost) Less: Accumulated depreciation Ma Print Done $25,000 805,556 700,625 $1,531,181 $2,093,819 500,000 ction prog ction program ction program ction program. Print Done