Question

Create pro forma financial statements from the information provided below
Year 1
Sales revenues increase 3.0%
Gross margin is 47%
SG&A decreases by 3.0%
$2000 of PP&E is purchased on January 1,
New PP&E is depreciated over 10 years
Inventory grows in line with COGS
Assume that all other asset accounts grow in line with sales (3.0%).
Accounts Payable grow in line with COGS
Accrued and deferred income taxes grows in line with tax expense.
Long-term debt increases by $500
Unless otherwise stated, liability accounts grow in line with sales (3.0%)
Treasury Stock purchases equal $200
Average interest cost of all interest bearing debt is 1.6%
Dividend payout ratio is 25%
Tax rate is 35%
Funding requirements should be financed with short-term debt
Y2
Sales revenue decline by 2.0%
Gross margin increases to 50%
Inventory grows in line with COGS
SG&A increases by 2%
$500 of PP&E is sold on January 1 for $500 cash. (Gross =$800, Accumulated depreciation = $300)
Annual depreciation expense declines by $ 50
Assume that all other asset accounts grow in line with sales. (-2.0%)
Accounts Payable grow in line with COGS
Long-term debt declines by $150
Accrued and deferred income taxes grows in line with tax expense.
Unless otherwise stated, liability accounts grow in line with sales (-2.0%)
Treasury Stock purchase is $250.
Average interest cost of all interest bearing debt is 1.8%
Dividend payout ratio changes to 28%
Tax rate is 35%
Funding requirements should be financed with short-term debt
Excess cash is used to retire short-term debt
100 shares of $1 par value common stock is issued for $400.
Do not add significant amounts to cash unless Loans & notes payable is drawn down to zero.

Income Statement
	Year 0	Year 1	Year 2
Revenues	17,000
Cost of Goods Sold	9,200
Gross Profit	7,800
SG&A	4,790
Depreciation	1,700
Operating Profit	1,310
Interest Expense	155
Incomes Before Taxes	1,155
Taxes @35%	404
Net Income	751
Dividends	225
Additional Retaines earnings	526

BALANCE SHEET
ASSETS
	Year 0	Year 1	Year 2
Cash and Cash Equivalents	640
Markateble Securities	28
Accounts Receivables	8,200
Inventory	3,142
Prepaid Espense and other Assets	1,323
Total Current Assets	13,333
Plant Property and equipment (gross)	7,607
Accumulated Depreciation	3,000
PP&E (net)	4,607
Total Assets	17,940
Liabiilties & Shareholders' Equity
	Year 0	Year 1	Year 2
Accounts payable	3,148
Loans and notes payable (plug)	2,423
accured incoems taxes	1,322
Total Current Liabilities	6,893
Long term debt	2,800
defferd incomes taxes	195
Shared holders' Equity
Common Stock at par	860
Capital Surplus	863
Retaines earnings	6429
Less Treasury Stock	-100
Total Equity	8,052
Total Liabiities and Shareholder Equity	17,940

Statement of Retained Earnings		Year 1	Year 2
Beginning retained earnings
+Net Income
-dividends
Ending retained earnings

Statement of Cash Flow		Year 1	Year 2
Net Income
+ Depreciation
+ (increase) decrease in A.R.
+ (increase) decrease in inventory
+ (increase) decrease in prepaid exp.
+ increase (decrease) in A.P.
+ increase (decrease) in accrued taxes
+ increase (decrease) in deferred taxes
=Cash Flow from operations
+ (increase) decrease in marketable sec.
+ (increase) decrease in PPE
=Cash Flow from investing
+ increase (decrease) in loans and notes.
+ increase (decrease) in LTD
+ increase (decrease) in common stock
- dividends
- treasury stock
=Cash flow from financing
Beginning cash
+Change in cash
Ending cash

Answer 1

Revenues	17,000	17510
Cost of Goods Sold	9,200	9280
Gross Profit	7,800	8230
SG&A	4,790	4646
Depreciation	1,700	1900
Operating Profit	1,310	1683
Interest Expense	155	69
Incomes Before Taxes	1,155	1614
Taxes @35%	404	565
Net Income	751	1049
Dividends	225	262
Additional Retaines earnings	526	787
Cash and Cash Equivalents	640	659
Markateble Securities	28	29
Accounts Receivables	8,200	8446
Inventory	3,142	3169
Prepaid Espense and other Assets	1,323	1363
Total Current Assets	13,333	13666
Plant Property and equipment (gross)	7,607	9607
Accumulated Depreciation	3,000	4900
PP&E (net)	4,607	4707
Total Assets	17,940	18373
Liabiilties & Shareholders' Equity
	Year 0	Year 1
Accounts payable	3,148	3175
Loans and notes payable (plug)	2,423	1038
accured incoems taxes	1,322	1849
Total Current Liabilities	6,893	6062
Long term debt	2,800	3300
defferd incomes taxes	195	273
Shared holders' Equity
Common Stock at par	860	860
Capital Surplus	863	863
Retaines earnings	6429	7216
Less Treasury Stock	-100	200
Total Equity	8,052	8739
Total Liabiities and Shareholder Equity	17,940	18373