(a)
Pro Forma Income Statement
Metroline Manufacturing, Inc.
For the Year Ended December 31, 2013
(percent-of-sales method)
Sales
$1,500,000
Less: Cost of goods sold (0.65  1500000)
Gross profits
Less: Operating expenses (0.086  1500000)
975,000
525,000
129,000
Operating profits
Less: Interest expense
396,000
35,000
Net profits before taxes
361,000
Less: Taxes (0.40  NPBT)
Net profits after taxes
144,400
216,600
Less: Cash dividends
To retained earnings
70,000
$146,600
% of CGS= 910000/1400000*100= 65%
% of Operating Expenses= 120000/1400000*100=8.6%
(b)
Pro Forma Income Statement
Metroline Manufacturing, Inc.
For the Year Ended December 31, 2013
(based on fixed and variable cost data)
Sales
Less: Cost of goods sold
Fixed cost
Variable cost (0.50  1500000)
Gross profits
Less: Operating expense:
Fixed expense
Variable expense (0.06  1500000)
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (0.40  NPBT)
Net profits after taxes
Less: Cash dividends
To retained earnings
$1,500,000
210,000
750,000
540,000
36,000
90,000
414,000
35,000
379,000
151,600
227,400
70,000
157,400
% of Variable CGS= 700000/1400000*100=50 %
% of Variable Operating Expenses= 84000/1400000*100=6%
Pro Forma Balance Sheet
Leonard Industries
December 31, 2013
ASSETS
AMOUNT
LIABILITES & EQUITY
AMOUNT
CASH
50,000
A/P(14% OF 3000,000)
420,000
MARKETABLE
SECURITIES
15,000
ACCURALS
60,000
OTHER C.LIABITIES
30,000
A/R (10% OF 3000,000)
300,000
TOTAL C.LIABLITIES
510,000
INV(12% OF 3000,000)
360,000
LONG TERM DEBT
350,000
TOTAL C.ASSETS
725,000
TOTAL LIABILITIES
860,000
NET FIXED ASSTS(W1)
658,000
COMMON STOCK
200,000
TOTAL ASSETS
1383,000
RETAIND EARNING(W2)
270,000
TOTAL LIABILITES & EQUITY
1330,000
ADDITIONAL FINANCE
REQUIRED
53,000
WORKING 1
NET FIXED ASSETS 2012 600,000
ADD NEW
90,000
TOTAL
690,000
1383,000
LESS DEPRECIATION
NET FIXED ASSETS 2013
32,000
658,000
WORKING 2
NET PROFIT 2013 (3000,000*4/100) 120,000
EXPECTED DIVIDEND
(70,000)
RETAINED EARNING
50,000
RETAINED EARNING (2012)
220,000
270,000