Question

Prepare the following Pro Forma Financial Statements for the proposed new location (pro forma statements in this case are budgeted statements for 2018 based on the new location scenario at the bottom of the page)
	Pro Forma Income Statement
	Pro Forma Balance Sheet
PEYTON APPROVED PRO FORMA INFORMATION
	The company is planning to open another location in 2018 . Prepare pro forma financials for 2018 for the new location using the following information:
	1. Cost of leasing commercial space: $1,500 per month.
	2. Cost of new equipment: $15,000. Use straight line depreciation assuming a seven-year life. Use full year’s depreciation for the first year.
	3. Cost of hiring and training new employees: three at $25,000 each for the first year.
	4. Except as noted in 5, assets, current liabilities, sales, costs, and expenses are expected to be 80% of the existing store (from preliminary statements) except no stock. Retained earnings = net income.
	5. Cash: $7,000. Accounts receivable amount to 4.0 turns (accounts receivable turnover will be 4.0); inventory amount to show 3.0 turns (inventory turnover will be 3.0). No stock will be issued. Retained earnings are to equal net income. Additional financing of $5,000 will be long-term. Add remaining amount needed to balance into accounts payable.
	Peyton Approved Balance Sheet As of December 31, 2017 Assets Liabilities and Owners' Equity Current Assets: Current Liabilities: Cash 68,520.04 Accounts Payable 23,437.11 Accounts Receivable 68,719.91 Wages Payable 3,383.28 Baking Supplies 18,681.70 Interest Payable 211.46 Merchandise Inventory 1,238.07 Customer Deposit 1,000.00 Prepaid Rent 2,114.55 Prepaid Insurance 2,114.55 Misc. Supplies 170.49 Other Receivable - Insurance 700.00 Consignment Inventory -200 Total Current Assets 162,059.31 Total Current Liabilities       28,031.85 Long Term Liabilities: Long Term/Fixed Assets: Notes Payable          5,000.00 Baking Equipment 12,000.00 Total Long Term Liabilities:         5,000.00      Accumulated Depreciation -406.44 Net Fixed assets     11,593.56 Total Liabilities:       33,031.85 Common Stock        20,000.00 Retained Earnings      120,621.02 Total Equity    140,621.02 Total Assets: 173,652.87 Total Liabilities & Equity    173,652.87

Peyton Approved
Income Statement
For Year Ended 12/31/2017
Bakery Sales		$ 327,322.55
Merchandise Sales		1,205.64
Total Revenues			328,528.19
Cost of Goods Sold - Baked		105,834.29
Cost of Goods Sold - Merchandise		859.77
Total Cost of Goods Sold			106,694.06
Gross Profit			221,834.13
Operating Expenses:
Loss on disposal of equipment		100.00
Rent Expense		24,549.19
Wages Expense		10,670.72
Misc. Supplies Expense		3,000.46
Business License Expense		2,045.77
Misc. Expense		1,363.84
Depreciation Expense		677.86
Insurance Expense		1,091.08
Advertising Expense		1,549.74
Interest Expense		818.31
Telephone Expense		490.98
Total Operating Expenses:			46,357.95
Net Income			175,476.18

Answer 1

Performa for INCOME STATEMENT - 2018 (Budgeted)

Sales - Bakery Sales - Merchandise Sales	261858.04 964.512
Total Revenue	262822.552
Cost of Goods Sold - Bakery -Merchandise	84667.432 687.816
Total Cost of Goods Sold	85355.248
Gross Profit ( Revenue- Cost of Goods Sold)	177467.304
Operating Expenses:- - Lease Expenses ($1500*12) -- Depreciation Expenses ( cost of equipment/life of equipment)- (15000/7) -Training & Hiring Expenses of employees ( 25000*3) -Wages Expense (10670.72* 80%) -  Misc. Supplies Expense (3000.46*80%) -Business License Expense (2045.77*80%) - Misc. Expense (1363.84 *80%) - Insurance Expense (1091.08 *80%) - Advertising Expense (1549.74*80%) - Interest Expense - Telephone Expense (490.98*80%)	18000 2142.86 75000 8536.576 2400.368 1636.616 1091.072 872.864 1270.78 818.31 392.784
Total Operating Expenses	112162.23
Net Income ( Gross Profit - Total Operating Expenses)	65305.074

Notes :-

1) Loss on disposal of equipment is treated as Abnormal Loss, so it is not considered in the budgeted income statement.

2) Sales and Cost of goods sold are taken at 80% of the previous year (2017) amounts.

3) Rent and Depreciation Expenses are not taken at 80% of the previous year balances as they have provided as with exact figures of the same in the question.

4) since long term finances are of same amount as previous year (i.e. $5000) so we have taken interest expense at 100% value instead of 80% of previous year amount.

PROFORMA OF BALANCE SHEET - 2018 ( Budgeted)

ASSETS:-		LIABILITIES:-
Current Assets-		Account Payable ( Balancing Figure )	85418.268
Cash	7000	other Payable	3674.992
Account Receivable	65705.638
Baking supplies	87286.01
merchandise Inventory	321.504
prepaid Insurance (2114.55*80%)	1691.64	Total Current Liabilities	89093.26
Misc Supplies (170.49*80%)	136.392
Other Receivables ( 700*80%)	560	Long Term Liabilities
Consignment Inventory (200*80%)	-160	Note Payables	5000
Total Current Assets	162541.187	Total Long term Liabilities	5000
		Common Stock	16000
Fixed Assets (15000-2142.85)	12857.15	Retain Earning	65305.074
Total Assts	175398.337	Total Liabilities	175398.337

Notes :-

1) Account Receivable calculation

Account receivable turnover = 4.0 ( turnover/ account receivable)

account receivable= 262822.552/4 = 65705.638

2) Inventory Calculation

Inventory Turnover = 3.0 (given)

Bakery Supplies = bakery turnover/bakery inventory

=261858.04/3 = 87286.01

Merchandise Inventory = Merchandise turnover/ merchandise inventory

=964.512/3 = 321.501

3) other payables ( liabilities ) include wages payable, interest payable and customer deposit at 80% of previous year balances