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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: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter Second Quarter Third Quarter $ 183,000 $ 213,000 Fourth Quarter $ 273,000 (128,100) 54,900 (18,300) (149,100) 63,900 (21,300) $ 223,000 (156,100) 66,900 (22,300) $ 36,600 $ 42,600 $ 44,600 (191,100) 81,900 (27,300) $ 54,600 Total $ 892,000 (624,400) 267,600 (89,200) $ 178,400 Historically, cost of goods sold is about 70 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales

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: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter Second Quarter Third Quarter $ 183,000 $ 213,000 Fourth Quarter $ 273,000 (128,100) 54,900 (18,300) (149,100) 63,900 (21,300) $ 223,000 (156,100) 66,900 (22,300) $ 36,600 $ 42,600 $ 44,600 (191,100) 81,900 (27,300) $ 54,600 Total $ 892,000 (624,400) 267,600 (89,200) $ 178,400 Historically, cost of goods sold is about 70 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter Second Quarter Third Quarter Fourth Quarter $ 213,000 $ 223,000 $ 273,000 $ 183,000 (128,100) 54,900 (18,300) (149,100) 63,900 (21,300) (156,100) 66,900 (22,300) (191,100) 81,900 (27,300) $ 36,600 $ 42,600 $ 44,600 $ 54,600 Total $ 892,000 (624,400) 267,600 (89,200) $ 178,400 Historically, cost of goods sold is about 70 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 15 percent for each respective quarter above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent. Required a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate. b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
Transcribed Image Text: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: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter Second Quarter Third Quarter Fourth Quarter $ 213,000 $ 223,000 $ 273,000 $ 183,000 (128,100) 54,900 (18,300) (149,100) 63,900 (21,300) (156,100) 66,900 (22,300) (191,100) 81,900 (27,300) $ 36,600 $ 42,600 $ 44,600 $ 54,600 Total $ 892,000 (624,400) 267,600 (89,200) $ 178,400 Historically, cost of goods sold is about 70 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 15 percent for each respective quarter above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent. Required a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate. b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
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