Using the information provided, prepare a Pro forma Income and Cat Statement (Income Statement) using the percentage of sales technique (percentage of sales method) This method projects sales and then expresses the income statement accounts as a percentage of projected sales This method assumes that all costs are variable, so you can underestimate the increase in profit when you made the sales if some of the costs are fixed and you can overestimate the profit if the sales decrease if some of the costs are fixed and are not accounted for they reduce when income is reduced Step 1 Determine, using data from the previous year, what percent of sales constitute The of sales revenue used to cover cost of goods sold Cost of goods sold Sales $ 80,000 $ 100,000 0 80 or 80 0 The of sales revenue used to cover operating expenses operating expenses Sales $ 10,000 $ 100,000 0 100 or 10 iii The of sales revenue that is used to pay interest Interest expense Sales $ 1,000 $ 100,000 0 010 or 1 0 Step 2 Apply these percentages to projected sales to prepare the Statement of Pro Forma income and expenses Consider the following Taxes 15 , Payment of dividends of ordinary shares $ 4,000 TABLE 4 12 FAIR TRADER INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2019 SALES REVENUE Mugs (1,000 units at $20 unit) $ 20,000 plates (2,000 unit at $40 unit) 80,000 Total sales $100,000 Less Cost of goods sold Labor $ 28,500 Materials 13,500 Overhead 38,000 Total cost of good sold $80,000 Gross profits $20,000 Less Operating Expenses 10,000 Operating profits 10,000 Less Interest expense 1,000 Net profits after taxes $ 9,000 Less Taxes (assumed rate 15 ) 1,350 Net profits after taxes $7,650 Less Common stock dividends $4,000 To retained earnings $3,650 TABLE 4 13 FAIR TRADER BALANCE SHEET, DECEMBER 31, 2019 Asset Liabilities and stockholders cash $6,000 Account payable $7,000 Marketable securities 4,000 Taxes payable 300 Account receivable 13,000 Notes payable 8,300 tInventory 16,000 Other Current Liabilities 3,400 Total current assets $39,000 Total current liabilities $19,000 Net fixed assets $1,000 Long term debt 18,000 total asset $90,000 Total liabilities $37,000 common stock 30,000 23,000 Total liabilities and stockholders equity $90,000 TABLE 4 12 2020 SALES FORECAST FOR FAIR TRADERS Unit sales Dollar sales Mugs 1,500 Mugs ($2 5 unit) $37,500 Plates 1,950 Plates ( $ 50 unit) 97,500 Total $135,000 2 Prepare a Pro Forma Income and Expense Statement for Fairs Trader separating costs and expenses into fixed and variable to Assume the following Of the total cost of goods sold (cost of goods sold) $ 40,000 are fixed, and the variables are equivalent to 40 of sales variable costs 2019 sales 2019 $ 40,000 $ 100,000 40 Of the operating expenses $ 5,000 are fixed and the variables constitute 5 of sales (variable cost 2019 Sales 2019 $ 5,000 $ 100,000 05 Interest is fixed $ 1,000 The tax rate is 15

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Using the information provided, prepare a Pro forma Income and Cat Statement (Income Statement) using the percentage of sales technique (percentage of sales method). This

Using the information provided, prepare a Pro forma Income and Cat Statement (Income Statement) using the percentage of sales technique (percentage of sales method). This method projects sales and then expresses the income statement accounts as a percentage of projected sales. This method assumes that all costs are variable, so you can underestimate the increase in profit when you made the sales if some of the costs are fixed and you can overestimate the profit if the sales decrease if some of the costs are fixed and are not accounted for. they reduce when income is reduced. Step # 1: Determine, using data from the previous year, what percent of sales constitute: The% of sales revenue used to cover cost of goods sold = Cost of goods sold / Sales = $ 80,000 / $ 100,000 = 0.80 or 80.0% The% of sales revenue used to cover operating expenses = operating expenses / Sales = $ 10,000 / $ 100,000 = 0.100 or 10% iii. The% of sales revenue that is used to pay interest = Interest expense / Sales = $ 1,000 / $ 100,000 = 0.010 or 1.0% Step # 2: Apply these percentages to projected sales to prepare the Statement of Pro-Forma income and expenses Consider the following: Taxes 15%, Payment of dividends of ordinary shares $ 4,000

TABLE 4.12 FAIR TRADER INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2019

SALES REVENUE

Mugs (1,000 units at $20/unit)	$ 20,000
plates (2,000 unit at $40/unit)	80,000
Total sales	$100,000
Less: Cost of goods sold
Labor	$ 28,500
Materials	13,500
Overhead	38,000
Total cost of good sold	$80,000
Gross profits	$20,000
Less:Operating Expenses	10,000
Operating profits	10,000
Less: Interest expense	1,000
Net profits after taxes	$ 9,000
Less: Taxes (assumed rate =15%)	1,350
Net profits after taxes	$7,650
Less: Common stock dividends	$4,000
To retained earnings	$3,650

TABLE 4.13 FAIR TRADER BALANCE SHEET, DECEMBER 31, 2019

Asset Liabilities and stockholders

cash. $6,000	Account payable $7,000
Marketable securities 4,000	Taxes payable 300
Account receivable 13,000	Notes payable. 8,300
tInventory. 16,000	Other Current Liabilities 3,400
Total current assets. $39,000	Total current liabilities $19,000
Net fixed assets. $1,000	Long-term debt. 18,000
total asset $90,000	Total liabilities. $37,000
	common stock. 30,000
	23,000
	Total liabilities and stockholders equity $90,000

TABLE 4.12

2020 SALES FORECAST FOR FAIR TRADERS

Unit sales Dollar sales

Mugs. 1,500	Mugs ($2.5/unit)	$37,500
Plates 1,950	Plates ($50/unit)	97,500
	Total	$135,000

2. Prepare a Pro-Forma Income and Expense Statement for Fairs Trader separating costs and expenses into fixed and variable. to. Assume the following: Of the total cost of goods sold (cost of goods sold) $ 40,000 are fixed, and the variables are equivalent to 40% of sales. = variable costs 2019 / sales 2019 = $ 40,000 / $ 100,000 = 40% Of the operating expenses $ 5,000 are fixed and the variables constitute 5% of sales = (variable cost 2019 / Sales 2019 = $ 5,000 / $ 100,000 = .05. Interest is fixed $ 1,000. The tax rate is 15%.