Using the Percent-of-Sales Method complete the Proforma Income Statement

and Balance Sheet.

(hint) Only certain items vary directly with sales, some are fixed.

PIE plans on purchasing a $50,000 piece of equipment.

Does this cause a problem with the Balance Sheet?

The B/S does not balance.

Why? How could we fix it?

PIE
Pro-forma Income Statement
For the Year Ended Dec. 31, 2019
	2020*	2019	2018
Sales	5,104.00	3,850.00	3,432.00
Cost of Goods Sold	4,283.93	3,250.00	2,864.00	84.42%	83.45%	83.93%	EXAMPLE
Gross Profit		600.00	568.00
Selling and G&A Expenses		330.30	240.00
Fixed Expenses		100.00	100.00
Depreciation Expense		20.00	18.90
EBIT		149.70	209.10
Interest Expense		76.00	62.50
Earnings Before Taxes		73.70	146.60
Taxes		29.48	58.64
Net Income		44.22	87.96
* Forecast
Notes:
Tax Rate	40%	40%
Additional Depreciation	5.00
Interest Rate	0.117
Expected dividend for 2020	30.00
PIE
Pro-forma Balance Sheet
As of Dec. 31, 2019
Assets	2020*	2019	2018
Cash and Equivalents	52.00	52.00	57.60
Accounts Receivable		402.00	351.20
Inventory		836.00	715.20
Total Current Assets		1,290.00	1,124.00
Plant & Equipment		527.00	491.00
Accumulated Depreciation		166.20	146.20
Net Fixed Assets		360.80	344.80
Total Assets		1,650.80	1,468.80
Liabilities and Owner's Equity
Accounts Payable		175.20	145.60
Short-term Notes Payable		225.00	200.00
Other Current Liabilities		140.00	136.00
Total Current Liabilities		540.20	481.60
Long-term Debt		424.61	323.43
Total Liabilities		964.81	805.03
Common Stock		460.00	460.00
Retained Earnings		225.99	203.77
Total Shareholder's Equity		685.99	663.77
Total Liabilities and Owner's Equity		1,650.80	1,468.80
Notes:
Net Addition to Plant & Equipment	50.00
Life of New Equipment in Years	10
New Depreciation (Straight Line)	5.00