Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.59 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $71,000 in cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December 31, 2019, is given 2, along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020. b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why. Metroline Manufacturing Income Statement for the Year Ended December 31, 2019 Sales revenue $1,405,000 Less: Cost of goods sold 909,000 Gross profits $496,000 Less: Operating expenses 129,000 Operating profits $367,000 Less: Interest expense 32,000 Net profits before taxes $335,000 Less: Taxes (rate = 40%) 134,000 Net profits after taxes $201,000 Less: Cash dividends 62,000 To retained earnings $139,000 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019 Cost of goods sold Fixed cost $207,000 Variable cost 702,000 Total cost $909,000 Operating expenses Fixed expenses $37,000 Variable expenses 92,000 Total expenses $129,000 Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.59 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $71,000 in cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December 31, 2019, is given 2, along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020. b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why. Metroline Manufacturing Income Statement for the Year Ended December 31, 2019 Sales revenue $1,405,000 Less: Cost of goods sold 909,000 Gross profits $496,000 Less: Operating expenses 129,000 Operating profits $367,000 Less: Interest expense 32,000 Net profits before taxes $335,000 Less: Taxes (rate = 40%) 134,000 Net profits after taxes $201,000 Less: Cash dividends 62,000 To retained earnings $139,000 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019 Cost of goods sold Fixed cost $207,000 Variable cost 702,000 Total cost $909,000 Operating expenses Fixed expenses $37,000 Variable expenses 92,000 Total expenses $129,000
