Question

Pro forma income statement. The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.64 million. Interest expense is expected to remain unchanged at $37,000​, and the firm plans to pay $69,000 in cash dividends during 2020. Metroline​ Manufacturing's income statement for the year ended December​ 31, 2019​, is given below​, along with a breakdown of the​ firm's cost of goods sold and operating expenses into their fixed and variable components.

Income Statement

Sales Revenue 1,405,000

Less: Cost of goods sold 914,000

Gross profits 491,000

Less: Operating expenses 110,000

Operating Profits 381,000

Less: Interest Expense 37,000

Net profits before taxes 344,000

Less: Taxes (rate= 40%) 137,600

Net profits after taxes 206,400

Less: cash dividends 68,000

To retained earnings 138,400

Breakdown of Cost and Expenses

Cost of goods sold

Fixed Cost 212,000

Variable Cost 702,000

Total Cost 914,000

Operating Expenses

Fixed expenses 37,000

variable expenses 73,000

Total expenses 110,000

A. Use the ​percent-of-sales method to prepare a pro forma income statement for the year ended December​ 31, 2020. Complete the pro forma income statement for the year ended December​ 31, 2020 ​below: (Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest​ dollar.)

Pro Forma Income Statement Metroline Manufacturing, Inc. for the Year Ended December 31, 2020 (percent-of-sales method)
Sales	$
Less: Cost of goods sold	$	%
Gross profits	$
Less: Operating expenses	$	%
Operating profits	$
Less: Interest expense	$
Net profits before taxes	$
Less: Taxes	$
Net profits after taxes	$
Less: Cash dividends	$
To retained earnings	$

B. Use fixed and variable cost data to develop a pro forma income statement for the year ended December​ 31, 2020. Complete the pro forma income statement for the year ended December​ 31, 2020 ​below: (Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest​ dollar.)

Pro Forma Income Statement Metroline Manufacturing, Inc. for the Year Ended December 31, 2020 (based on fixed and variable cost data)
Sales	$
Less: Cost of goods sold
Fixed cost	$
Variable cost	$	%
Gross profits	$
Less: Operating expenses
Fixed expense	$
Variable expense	$	%
Operating profits	$
Less: Interest expense	$
Net profits before taxes	$
Less: Taxes	$
Net profits after taxes	$
Less: Cash dividends	$
To retained earnings	$

C. Complete the following statements:

The pro forma income statement developed using the fixed and variable cost data projects a (enter either 'higher' or 'lower')  net profit after taxes due to (enter either 'higher' or 'lower')  cost of goods sold and operating expenses. Although the​ percent-of-sales method projects a more (enter either 'conservative' or 'aggressive')  estimate of net profit after​ taxes, the pro forma income statement that classifies fixed and variable cost is (enter either 'less' or 'more')  accurate.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE