Question

In: Accounting

Use your 2011 Income Statement as your base, and then make the adjustments listed below in...

Use your 2011 Income Statement as your base, and then make the adjustments listed below in order to construct a 2012 Pro Forma Income Statement. Your goal here is to show management what the Income Statement for 2012 will look like based on these assumptions. After completing your Pro Forma Income Statement, compose a final report to management and discuss the anticipated results of the company in 2012. Pro Forma Income Statement for 2012 includes the following Management assumptions.

1) Sales for existing business will remain at $3,300,000, but add $500,000 for new clothing line.

2) Cost of Goods Sold for existing business will remain at $2,250,000. Add $300,000 to Cost of Goods Sold for new clothing line.

3) Selling and Administrative Expenses will increase by 15% with new line.

4) Assume Interest will be $50,000 in 2012.

5) Assume Taxes will be 30% of Earnings Before Taxes for 2012.

Morgan Corporation Pro Forma Income Statement For 2012

2011 2012

Sales $3,300,000 $3,800,000

Cost of Goods Sold $2,250,000 $2,550,000

Gross Profits $1,050,000 $1,250,000

Selling and Administrative Expense $600,000 $690,000

Depreciation Expense $100,000 $100,000

Operating Profit $350,000 $460,000

Interest Expense $52,000 $50,000

Earnings before taxes $298,000 $410,000

Taxes $ 58,000 $123,000

Net Income $240,000 $287,000

Write a report on your findings. Discuss the trends you see on the 2011 vs. 2012 Income Statements. How much does profits increase as a result of adding the assumed clothing line sales. Does it all seem worth it? What risks do you see with the company if sales that management is assuming here are not achieved?

Expert Solution

Profits increment by $47,000 for the anticipated deals in 2012.However, there isn't much change in the productivity of the firmafter including the new line, as gross edge and net benefit marginremain genuinely steady.

Generally speaking, the firm\'s execution is by all accounts the same with orwithout the new line. Be that as it may, since there is no additionaldepreciation related with the new line there is no additional riskinvolved in thinking about the new line.

ekkarill92 answered 1 year ago

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