Pro forma income statementThe marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.52 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $68,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.

Metroline Manufacturing Income Statement for the Year Ended December 31, 2012
Sales revenue	$1,396,000
Less: Cost of goods sold	902000
Gross profits	$494,000
Less: Operating expenses	114000
Operating profits	$380,000
Less: Interest expense	35000
Net profits before taxes	$345,000
Less: Taxes (rate = 40%)	138000
Net profits after taxes	$207,000
Less: Cash dividends	64000
To retained earnings	$143,000

Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2015
Cost of goods sold
Fixed cost	$203,000
Variable cost	699,000
Total cost	$902,000
Operating expenses
Fixed expenses	$37,000
Variable expenses	77,000
Total expenses	$114,000

a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016.

Complete the pro forma income statement for the year ended December 31, 2016 below:(Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest dollar.)

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Pro Forma Income Statement
Metroline Manufacturing, Inc.
for the Year Ended December 31, 2016
(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	$

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.

Complete the pro forma income statement for the year ended December 31, 2016 below:(Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest dollar.)

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Pro Forma Income Statement
Metroline Manufacturing, Inc.
for the Year Ended December 31, 2016
(based on fixed and variable cost data)
Sales	$
Less: Cost of goods sold
Fixed cost
Variable cost					%
Gross profits	$
Less: Operating expenses
Fixed expense
Variable expense					%
Operating profits	$
Less: Interest expense
Net profits before taxes	$
Less: Taxes
Net profits after taxes	$
Less: Cash dividends
To retained earnings	$

c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why.(Select from the drop-down menus.)

The pro forma income statement developed using the fixed and variable cost data projects a

net profit after taxes due to

cost of goods sold and operating expenses. Although the percent-of-sales method projects a more

estimate of net profit after taxes, the pro forma income statement that classifies fixed and variable cost is

accurate.