Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.55 million. Interest expense is expected to remain unchanged at $36,000, and the firm plans to pay $65,000 in cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December 31, 2019, 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, 2020 b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020 c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020. Complete the pro forma income statement for the year ended December 31, 2020 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, 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 Net profits after taxes Less: Cash dividends To retained earnings b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. Complete the pro forma income statement for the year ended December 31, 2020 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, 2020 (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 c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why. (Select from the drop-down menus.) v net profit after taxes due to cost of goods sold and operating expenses. Although the percent-of-sales method projects a more estimate of net profit after taxes, the pro forma income statement that The pro forma income statement developed using the fixed and variable cost data projects a classifies fixed and variable cost is accurate. higher higher conservative Click to select your answer(s) and less e ck Answer. lower lower aggresive more (Click on the icon located on the top-right corner of the data tables below in order to copy its contents into a spreadsheet.) Metroline Manufacturing Income Statement for the Year Ended December 31, 2019 Sales revenue $1,395,000 Less: Cost of goods sold 908,000 Gross profits $487,000 Less: Operating expenses 123,000 Operating profits $364,000 Less: Interest expense 36,000 Net profits before taxes $328,000 Less: Taxes (rate = 40%) 131,200 Net profits after taxes $196,800 Less: Cash dividends 60,000 To retained earnings $136,800 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019 Cost of goods sold Fixed cost $216,000 Variable cost 692,000 Total cost $908,000 Operating expenses Fixed expenses $39,000 Variable expenses 84,000 Total expenses $123,000
