Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020, for Saw Lumber, Inc.

Saw Lumber, Inc. estimates that its sales in 2020 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2020. The income statement for the year ended December 31, 2019 is shown below.

Income Statement Saw Lumber, Inc. For the Year Ended December 31, 2019

Sale revenue	$4,200,000
Less: Cost of goods sold	3,570,000
Gross profits	630,000
Less Operating expenses	210,000
Operating profits	420,000
Less: Interest expense	105,000
Net income before taxes	315,000
Less: Taxes (40%)	126,000
Net income after taxes	189,000
Less: Cash dividends	120,000
To: Retained earnings	69,000

Based on your calculations, how is the accumulated retained earnings account on the pro forma balance sheet projected to change between 2019 and 2020?

• A.

  Increase by $52,500 from the prior year.

• B.

  Increase by $57,000 from the prior year.

• C.

  Decrease by $57,000 from the prior year.

• D.

  Decrease by $52,500 from the prior year.