P4-16 Pro forma income statement The marketing department of Metroline Manufac turing estimates that its sales in 2020 will be $1.5 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $70,000 is cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December 31, 2019, and a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components are gives below. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020. b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a and b. Which state- ment probably provides the better estimate of 2020 income? Explain why. Metroline Manufacturing Income Statement for the Year Ended December 31, 2019 Sales revenue Less: Cost of goods sold Gross profits Less Operating expenses Operating profits Less Interest expense Net profits before taxes Less Taxes (rate= 40 %) Net profits after taxes Less: Cash dividends To retained earnings $1,400,000 910,000 $ 490,000 120,000 $ 370,000 35,000 S 335,000 134,000 S 201,000 66,000 $ 135,000 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019 Cost of goods sold Fixed cost Variable cost Total costs Operating expenses Fixed expenses Variable expenses Total expenses $210,000 700,000 $910,000 $ 36,000 84,000 $120,000
P4-16 Pro forma income statement The marketing department of Metroline Manufac turing estimates that its sales in 2020 will be $1.5 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $70,000 is cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December 31, 2019, and a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components are gives below. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020. b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a and b. Which state- ment probably provides the better estimate of 2020 income? Explain why. Metroline Manufacturing Income Statement for the Year Ended December 31, 2019 Sales revenue Less: Cost of goods sold Gross profits Less Operating expenses Operating profits Less Interest expense Net profits before taxes Less Taxes (rate= 40 %) Net profits after taxes Less: Cash dividends To retained earnings $1,400,000 910,000 $ 490,000 120,000 $ 370,000 35,000 S 335,000 134,000 S 201,000 66,000 $ 135,000 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019 Cost of goods sold Fixed cost Variable cost Total costs Operating expenses Fixed expenses Variable expenses Total expenses $210,000 700,000 $910,000 $ 36,000 84,000 $120,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:P4-16
Pro forma income statement The marketing department of Metroline Manufac
tūring estimates that its sales in 2020 will be $1.5 million. Interest expense is
expected to remain unchanged at $35,000, and the firm plans to pay $70,000 in
cash dividends during 2020. Metroline Manufacturing's income statement for
the year ended December 31, 2019, and a breakdown of the firm's cost of goods
sold and operating expenses into their fixed and variable components are gives
below.
a. Use the percent-of-sales method to prepare a pro forma income statement for the
year ended December 31, 2020.
b.
Use fixed and variable cost data to develop a pro forma income statement for the
year ended December 31, 2020.
c.
Compare and contrast the statements developed in parts a and b. Which state-
ment probably provides the better estimate of 2020 income? Explain why.
Metroline Manufacturing
Income Statement
for the Year Ended December 31, 2019
Sales revenue
Less: Cost of goods sold
Gross profits
Less Operating expenses
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (rate=40%)
Net profits after taxes
Less: Cash dividends
To retained earnings
$1,400,000
910,000
490,000
120,000
$ 370,000
35,000
$ 335,000
134,000
201,000
66,000
$ 135,000
S
S
Metroline Manufacturing
Breakdown of Costs and Expenses
into Fixed and Variable Components
for the Year Ended December 31, 2019
Cost of goods sold
Fixed cost
Variable cost
Total costs
Operating expenses
Fixed expenses
Variable expenses
Total expenses
$210,000
700,000
$910,000
$ 36,000
84,000
$120,000
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