Pro forma income statementThe marketing department of Metroline Manufacturing estimates that its sales next year will be $1.56 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $69,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given 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 next year.

b. Use fixed and variable cost data to develop a pro forma income statement for next year.

c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why.

Metroline Manufacturing Income Statement for the Year Ended December 31, 2012
Sales revenue	$1,399,000
Less: Cost of goods sold	919000
Gross profits	$480,000
Less: Operating expenses	118000
Operating profits	$362,000
Less: Interest expense	32000
Net profits before taxes	$330,000
Less: Taxes (rate = 40%)	132000
Net profits after taxes	$198,000
Less: Cash dividends	69000
To retained earnings	$129,000

Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Just Ended
Fixed cost	$214,000
Variable cost	705000
Total cost	$919,000
Operating expenses
Fixed expenses	$34,000
Variable expenses	84000
Total expenses	$118,000

Question content area bottom

Part 1

a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31,

2020.

Complete the pro forma income statement for the year ended December 31,

2020

below:(Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest dollar.)

Pro Forma Income Statement
Metroline Manufacturing, Inc.
for the Year Ended December 31, 2020
(percent-of-sales method)
Sales	$
Less: Cost of goods sold					%
Gross profits	$
Less: Operating expenses					%
Operating profits	$
Less: Interest expense
Net profits before taxes	$
Less: Taxes
Net profits after taxes	$
Less: Cash dividends
To retained earnings	$