Use your 2011 Income Statement as your base, and then make the adjustments listed below in
order to construct a 2012 Pro Forma Income Statement. Your goal here is to show management what the Income Statement for 2012 will look like based on these assumptions. After completing your Pro Forma Income Statement, compose a final report to management and discuss the anticipated results of the company in 2012.
Pro Forma Income Statement for 2012 includes the following Management assumptions.
1) Sales for existing business will remain at $3,300,000, but add $500,000 for new clothing line.
2) Cost of Goods Sold for existing business will remain at $2,250,000. Add $300,000
to Cost of Goods Sold for new clothing line.
3) Selling and Administrative Expenses will increase by 15% with new line.
4) Assume Interest will be $50,000 in 2012.
5) Assume Taxes will be 30% of Earnings Before Taxes for 2012.
Morgan Corporation
Pro Forma Income Statement
For 2012
	2011	2012
Sales	$3,300,000	$3,800,000
Cost of Goods Sold	$2,250,000	$2,550,000
Gross Profits	$1,050,000	$1,250,000
Selling and Administrative Expense	$600,000	$690,000
Depreciation Expense	$100,000	$100,000
Operating Profit	$350,000	$460,000
Interest Expense	$52,000	$50,000
Earnings before taxes	$298,000	$410,000
Taxes	$58,000	$123,000
Net Income	$240,000	$287,000
Write a report on your findings. Discuss the trends you see on the 2011 vs. 2012
Income Statements. How much does profits increase as a result of adding the assumed clothing
line sales. Does it all seem worth it? What risks do you see with the company if sales that
management is assuming here are not achieved? You may be creative with this report