Pro forma statements
XYZ Enterprise's Financial Manager has asked you to prepare financial plans based on historic information and assumptions provided. Use the financial statements and the other information provided below to prepare the financial plans.
The following financial data are also available:
(1) The firm has estimated that its sales for 2016 will be $900,000.
(2) The firm expects to pay $35,000 in cash dividends in 2016.
(3) The firm wishes to maintain a minimum cash balance of $30,000.
(4) Accounts receivable represent approximately 18% of annual sales.
(5) The firms ending inventory will change directly with changes in sales in 2016.
(6) A new machine costing $42,000 will be purchased in 2016. Total depreciation for 2016 will be $17,000.
(7) Accounts payable will change directly in response to changes in sales in 2016.
(8) Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
(9) Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
a. Prepare a pro forma income statement for the year ended December 31, 2016, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2016, using the judgmental approach.
c. Analyze these statements, and discuss the resulting external financing required.
XYZ Enterprise Income Statement for the Year Ended December 31, 2015
Sales revenue	$800,000
Less: Cost of goods sold	$600,000
Gross profits	$200,000
Less: Operating expenses	$100,000
Net profits before taxes	$100,000
Less: Taxes (rate = 40%)	$40,000	40%	tax rate
Net profits after taxes	$60,000
Less: Cash dividends	$20,000
To retained earnings	$40,000
XYZ Enterprise Balance Sheet December 31, 2015
Assets			Liabilities and stockholders equity
Cash	$32,000		Accounts payable	$100,000
Marketable securities	$18,000		Taxes payable	$20,000
Accounts receivable	$150,000		Other current liabilities	$5,000
Inventories	$100,000		Total current liabilities	$125,000
Total current assets	$300,000		Long-term debt	$200,000
Net fixed assets	$350,000		Total liabilities	$325,000
Total assets	$650,000
			Common stock	$150,000
			Retained earnings	$175,000
			Total Stockholders' Equity	$325,000
			Total liabilities and Stockholders' Equity	$ 650,000