xercise 14-15A (Static) Preparing pro forma income statements with different assumptions LO 14-6

Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
Sales revenue	$	90,000			$	100,000			$	105,000			$	130,000			$	425,000
Cost of goods sold		54,000				60,000				63,000				78,000				255,000
Gross profit		36,000				40,000				42,000				52,000				170,000
Selling & administrative expenses		8,500				10,000				10,500				13,000				42,000
Net income	$	27,500			$	30,000			$	31,500			$	39,000			$	128,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue.

Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last years level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required

1. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadas estimate.

2. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks estimate.

1-

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Sales revenue	$97,200	$108,000	$113,400	$140,400	$459,000
Cost of goods sold	58,320	64,800	68,040	84,240	275,400
Gross profit	38,880	43,200	45,360	56,160	183,600
Selling & administrative expenses	9,720	10,800	11,340	14,040	45,900
Net income	$29,160	$32,400	$34,020	$42,120	$137,700

2-

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Sales revenue	$94,500	$105,000	$110,250	$136,500	$446,250
Cost of goods sold	56,700	63,000	66,150	81,900	267,750
Gross profit	37,800	42,000	44,100	54,600	178,500
Selling & administrative expenses	9,450	10,500	11,025	13,650	44,625
Net income	$28,350	$31,500	$33,075	$40,950	$133,875

The answer is provided but I have no clue how to find each of them please help me and explain in details how to find them..Thanks