tThe marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.59million. Interest expense is expected to remain unchanged at$36,000,and the firm plans to pay $65,000 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.

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

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

c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why.

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.)

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	$

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

The fixed and variable cost data method first requires a sales forecast (as do most methods). After sales are forecast, accounts that are calculated based on sales are forecast and include variable portion of cost of goods sold and the variable portion of operating expenses (for this firm). Expected sales, interest expense, the tax rate, and expected dividends are given.

The pro forma income statement for the year ended December 31, 2016 is shown below:

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

Metroline Manufacturing Income Statement for the Year Ended December 31, 2015
Sales revenue	$1,390,000
Less: Cost of goods sold	903,000
Gross profits	$487,000
Less: Operating expenses	117,000
Operating profits	$370,000
Less: Interest expense	$36,000
Net profits before taxes	$334,000
Less: Taxes (rate equals 40 %rate=40%)	133,600
Net profits after taxes	$ 200 comma 400$200,400
Less: Cash dividends	62 comma 00062,000
To retained earnings	Modifying $ 138 comma 400 with double underline $138,400

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	$ 213 comma 000$213,000
Variable cost	690 comma 000690,000
Total cost	Modifying $ 903 comma 000 with double underline $903,000
Operating expenses
Fixed expenses	$ 37 comma 000$37,000
Variable expenses	80 comma 00080,000
Total expenses	Modifying $ 117 comma 000 with double underline $117,000