Question

LUKE’S HOLIDAY SUPPLIES, INC.

Pro Forma Statements Problem

A)        1.             Income Statement                                                          Balance Sheet

                             Year Ended 2018                                                              12/31/18

            Sales                                               $12,520                Cash                                                    $   110

            Cost of Goods Sold                            9,698                Marketable Securities                            360

            Gross Profit                                        2,882                Accounts Receivable                            2,220

            Expenses                                            1.594                Inventory                                            3,210

            Earnings Before Interest and Tax      1,228                    Total Current Assets                       5,900

            Interest                                                  278

Earnings Before Tax                           950    Property/Plant/Equipment       4,730

            Tax (40%)                                           380 Accumulated Depreciation     680

            Net Income                                           570                    Net Fixed Assets                             4,050

           

Total Assets                                      $ 9,950

                                                                                                Accounts Payable                               $ 1,020

                                                                                                Notes Payable                                         950

                                                                                                Accrued Expenses                                   610

                                                                                                Accrued Tax                                             450

                                                                                                    Total Current Liabilities                  3,030

                                                                                                Long Term Liabilities                         2,500

                                                                       

                                                                                                    Total Liabilities                               5,530

Common Stock – no par                       2,000

Retained Earnings    2,420 Total Equity                            4,420

                                                                                                Total Liabilities and Equity $ 9,950

Based on the 2018 Financial Statements above, compute Pro Forma’s for 2019 using the percent of sales method using the following assumptions:

1. 24.6% growth rate in sales,
2. Tax rate remains at 40%, and
3. Dividend payout remains at $450

Answer 1

Please see the tables below:

Figures are there in second column. Last column explains how each item has been calculated.

Proforma Income Statement for 2019
Parameter	$	How it has been calculated
Sales	15,600	12520 x (1+24.6%)
[-] Cost of Goods Sold	12,084	9698 x (1+24.6%)
Gross Profit	3,516	Sales - COGS
[-] Expenses	1,986	1594 x (1+24.6%)
EBIT	1,530	Gross profit - expenses
[-] Interest	278	Same as 2018 figure
Earnings before taxes	1,252	EBIT - Interest
[-] Taxes	501	=40% x Earnings before taxes
Net income	751	EBT - Taxes
[-] Dividends	450	As given in question
Addition to Retained Earnings	301	Net income - dividends
Proforma Balance Sheet for 2019
Parameter	$	How it has been calculated
Cash	137	110 x (1+24.6%)
[+] Marketable Securities	449	360 x (1+24.6%)
[+] Accounts receivables	2,766	2220 x (1+24.6%)
[+] Inventory	4,000	3210 x (1+24.6%)
Total Current Assets	7,351	Sum of above items
Property, plant & equipment	5,894	4730 x (1+24.6%)
[-] Accumulated Depreciation	847	680 x (1+24.6%)
Net Fixed Assets	5,046	Difference of above two items
Total Assets	12,398	Total current assets + Net fixed assets
Accounts Payable	1,271	1020 x (1+24.6%)
[+} Notes payables	950	Same as 2018 figure
[+] Accrued expenses	760	610 x (1+24.6%)
[+] Accrued tax	561	450 x (1+24.6%)
Total Current Liabilities	3,542	Sum of above items
Long term liabilities	2,500	Same as 2018 figure
Total Liabilities	6,042	Total current Liabilities + Long term liabilities
Common stock	2,000	Same as 2018 figure
Retained earnings	2,721	Retained earnings of 2018 + Addtion to the retained earnings from proforma income statement = 2,420 + 301
Total Equity	4,721	Common stock + retained earnings
Total Liabilities & Equity before EFN	10,763	Total liabilities + Total equity
External financing needed (EFN)	1,635	Balancing figure = total assets - Total Liabilities & Equity before EFN = 12,398 - 10,763
Total Liabilities & Equity after EFN	12,398	Total Liabilities & Equity before EFN + External funding needed = 10,763 + 1,635