Pro forma statements. Provincial Imports Inc. has assembled past (2020) financial statements (income statement and balance sheet below) and financial projections for use in preparing financial plans for the coming year (2021). Only cells with blue fill color need to be updated (the remaining cells will update for you as you complete your work). Provincial Imports Inc. Income Statement for the Year Ended December 31, 2020 Sales Revenue $5,000,000 Less: Cost of goods sold 2,750,000 Gross profits $2,250,000 Less: Operating expenses 850,000 Operating profits $1,400,000 Less: Interest expense 200.000 Net profits before taxes $1,200,000 Less: Taxes (rate = 21%) 252,000 Net profits after taxes 5948,000 Less: Cash dividends 288,000 To retained earnings 5660,000 Provincial Imports Inc. Balance Sheet December 31, 2020 Assets Liabilities and stockholders' equity Cash $200,000 Accounts payable $700,000 Marketable securities 225,000 Taxes payable 95,000 Accounts receivable 625,000 Notes payable 200,000 Inventories 500,000 Other current liabilities 5,000 Total current assets $1,550,000 Total current liabilities $1,000,000 Net fixed assets 1,400,000 Long-term debt 500,000 Total assets $2,950,000 Total liabilities $1,500,000 Common stock 75,000 Retained earnings 1,375,000 Total liabilities and equity $2,950,000Information related to nancial projections for the year 2021 is as follows: (1) Projected sales are $6,000,000. (2) Cost of goods sold in 2020 includes $1,000,000 in xed costs. (3) Operating expense in 2020 includes $250,000 in xed costs. (4) Interest expense wl remain unchanged. (5) The rm wl pay cash dividends amounting to 40% of net prots after taxes. (6) Cash and inventories will double. (2) Marketable securities, notes payable, longterm debt, and common stock will remain unchanged. (8) Accounts receivable, accounts payable, and other current liabilities wl change in direct response to the change in sales. (9) A new computer system costing $355,000 will he purchased during the year. Total depreciation expense for the year will he (10) The tax rate will remain at 21%. a. Prepare a pro forma income statement for the year ended December 31, 2021, using the xed cost data given to improve the accuracy of the peroentofsales method. 1!. Prepare a pro forma balance sheet as of December 31, 2021, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. Solution a. Prepare a pro forma income statement for the year ended December 31, 2021, using the fixed cost data given to improve the accuracy of the percent-of-sales method. Provincial Imports Inc. Pro Forma Income Statement for the Year Ended December 31, 2021 Sales $6,000,000 Less: Cost of goods sold Gross profits $6,000,000 Less: Operating expenses Operating profits $6,000,000 Less: Interest expense $200,000 Net profits before taxes $5,800,000 Less: Taxes (rate = 21%) Net profits after taxes $5,800,000 Less: Cash dividends To retained earnings $5,800,000 b. Prepare a pro forma balance sheet as of December 31, 2021, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. Provincial Imports Inc. Pro Forma Balance Sheet as of December 31, 2021 Assets Liabilities and stockholders' equity Cash Accounts payable Marketable securities $225,000 Taxes payable Accounts receivable Notes payable $200,000 Inventories Other current liabilities $6,000 Total current assets $225.000 Total current liabilities $206,000 Net fixed assets Long-term deb $500,000 Total assets $225,000 Total liabilities 706,000 Common stock $75,000 Retained earnings External funds required -$556,000 Total liabilities and equity 225,000
