As Ms. White is preparing her pro forma income statement for the year, she receives a telephone call from the maintenance supervisor at the office. He informs Ms. White that electrical repairs to the office heating system are necessary, which will cost $10,000. She asks if the repairs are essential, to which the supervisor replies, “No, the office won’t burn down if you don’t make them, but they are advisable for energy efficiency and long-term op¬ eration of the system.” Ms. White tells the supervisor to see her on Monday at 8:00 A.M.

Ms. White was fairly pleased with her pro forma results. Although the results did provide the 13 percent rate of return on investment desired by corporate management, the results did not reach the 16 percent rate needed for Ms. White to receive a bonus. Ms. White has an asset investment base of $4,500,000.

a. Prepare a pro forma income statement for Ms. White’s division. Determine the amount of residual income for the division.

b. Ms. White’s less-than-scrupulous friend, Ms. Green, walked into the house at this time. When she heard that Ms. White was not going- to receive a bonus, Ms. Green said, “Here, let me take care of this for you.” She pro¬ ceeded to recompute the pro forma income statement and showed Ms. White that, based on her computation of $723,000 in income she would be receiving her bonus. Prepare Ms. Green’s pro forma income statement.

c. What future difficulties might arise if Ms. White acts in a manner that will make Ms. Green’s pro forma income statement figures a reality?