Techno Corp

Assignment

You are a consultant, external to this firm. Create one year (2020) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing and financing sections for 2020 only.

Techno Corporation is developing its pro forma financial statement forecasts for 2020 and 2021. Its actual results for 2019 are shown in the income statement and balance sheet.

Background

The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.

Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.

Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.

Dividend policy calls for 40% of net profits after taxes to be paid before yearend.

Interest is 10% of long-term debt and notes payable

Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.

Any cash over $500,000 is put in marketable securities, Interest income is negligible

Other current liabilities are stable.

Taxes payable are equal to one-half of the current year's taxes.

Assume sales will increase 10% per year for each of the next two years.

Income Statement

Actual results 2019 for 12 months ending December 31, 2019

Sales revenue (10,000 units at $250 each)	$2,500,000
Cost of goods sold ($100 per unit)	($1,000,000)
Gross profit	$1,500,000
Operating expenses	($500,000)
Operating profit	$1,000,000
Interest expense	($200,000)
Net profits before taxes	$800,000
Taxes (30%)	($240,000)
Net profits after tax	$560,000
Dividends on common stock	$224,000

Techno Corp

Balance Sheet

December 31, 2019

ASSETS
Cash	$500,000
Marketable securities	$300,000
Accounts receivable	$500.000
Inventory	$400,000
Total current assets	$1,700,000
Net fixed assets	$2,000,000
Total assets	$3,700,000
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable	$150,000
Taxes payable	$120,000
Notes payable (long-term debt due within one year)	$200,000
Other current liabilities	$200,000
Total current liabilities	$670,000
Long-term debt	$1,800,000
Total liabilities	$2,470,000
Common stock	$500,000
Retained earnings	$730,000
Total liabilities and stockholder's equity	$3,700,000