Provincial Imports, Inc., has assembled past

(20192019)

financial statements (income statement and balance sheet

Provincial Imports, Inc. Income Statement

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for the Year Ended December 31, 20192019

Sales revenue

$ 5 comma 006 comma 000$5,006,000

Less: Cost of goods sold

2 comma 750 comma 0002,750,000

Gross profits

$ 2 comma 256 comma 000$2,256,000

Less: Operating expenses

846 comma 000846,000

Operating profits

$ 1 comma 410 comma 000$1,410,000

Less: Interest expense

204 comma 000204,000

Net profits before taxes

$ 1 comma 206 comma 000$1,206,000

Less: Taxes

(rate equals 21 %rate=21%)

253 comma 260253,260

Net profits after taxes

$ 952 comma 740$952,740

Less: Cash dividends

333 comma 459333,459

To retained earnings

$ 619 comma 281$619,281

Provincial Imports, Inc. Balance Sheet

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December 31, 20192019

Assets

Liabilities and Stockholders' Equity

Cash

$ 198 comma 000$198,000

Accounts payable

$ 691 comma 000$691,000

Marketable securities

232 comma 000232,000

Taxes payable

95 comma 00095,000

Accounts receivable

621 comma 000621,000

Notes payable

193 comma 000193,000

Inventories

491 comma 000491,000

Other current liabilities

4 comma 8004,800

Total current assets

$ 1 comma 542 comma 000$1,542,000

Total current liabilities

$ 983 comma 800$983,800

Net fixed assets

1 comma 393 comma 0001,393,000

Long-term debt

494 comma 200494,200

Common stock

79 comma 00079,000

Retained earnings

1 comma 378 comma 0001,378,000

Total assets

$ 2 comma 935 comma 000$2,935,000

Total liabilities and equity

$ 2 comma 935 comma 000$2,935,000

)

and financial projections for use in preparing financial plans for the coming year

(20202020).

Information related to financial projections for the year

20202020

is as follows:

(1) Projected sales are

$ 5 comma 990 comma 000$5,990,000.

(2) Cost of goods sold in

20192019

includes

$ 1 comma 004 comma 000$1,004,000

in fixed costs.

(3) Operating expense in

20192019

includes

$ 250 comma 000$250,000

in fixed costs.

(4) Interest expense will remain unchanged.

(5) The firm will pay cash dividends amounting to

35 %35%

of net profits after taxes.

(6) Cash and inventories will double.

(7) Marketable securities, notes payable, long-term debt, and common stock will remain unchanged.

(8) Accounts receivable, accounts payable, and other current liabilities will change in direct response to the change in sales.

(9) A new computer system costing

$ 366 comma 000$366,000

will be purchased during the year. Total depreciation expense for the year will be

$ 118 comma 000$118,000.

(10) The tax rate will remain at

21 %21%.

a. Prepare a pro forma income statement for the year ended December 31,

20202020,

using the fixed cost data given to improve the accuracy of the percent-of-sales method.

b. Prepare a pro forma balance sheet as of December 31,

20202020,

using the information given and the judgmental approach. Include a reconciliation of the retained earnings account.

c. Analyze these statements, and discuss the resulting external financing required.

a. Prepare a pro forma income statement for the year ended December 31,

20202020,

using the fixed cost data given to improve the accuracy of the percent-of-sales method.Complete the pro forma income statement for the year ended December 31,

20202020

below:(Round to the nearest dollar.)

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Pro Forma Income Statement
Provincial Imports, 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 (rate = 21%)
Net profits after taxes	$
Less: Cash dividends (35%)
To Retained earnings	$

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