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Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.52 million. Interest expense is expected to remain unchanged at $35,000?, and

Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.52 million. Interest expense is expected to remain unchanged at $35,000?, and the firm plans to pay $68,000 in cash dividends during 2016. Metroline? Manufacturing's income statement for the year ended December? 31, 2015, is given along with a breakdown of the? firm's cost of goods sold and operating expenses into their fixed and variable components.

Metroline Manufacturing
Income Statement
for the Year Ended December 31, 2012
 
Sales revenue $1,396,000
Less: Cost of goods sold 902000
Gross profits $494,000
Less: Operating expenses 114000
Operating profits $380,000
Less: Interest expense 35000
Net profits before taxes $345,000
Less: Taxes (rate = 40%) 138000
Net profits after taxes $207,000
Less: Cash dividends 64000
To retained earnings

$143,000

Metroline Manufacturing

Breakdown of Costs and Expenses

into Fixed and Variable Components

for the Year Ended December? 31, 2015

 

Cost of goods sold

 

Fixed cost

$203,000

Variable cost

699,000

Total cost

$902,000

Operating expenses

 

Fixed expenses

$37,000

Variable expenses

77,000

Total expenses

$114,000

a. Use the ?percent-of-sales method to prepare a pro forma income statement for the year ended December? 31, 2016.

Complete the pro forma income statement for the year ended December? 31, 2016? below: ?(Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest? dollar.)

 

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Pro Forma Income Statement

Metroline Manufacturing, Inc.

for the Year Ended December 31, 2016

(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, 2016.

Complete the pro forma income statement for the year ended December? 31, 2016? below: ?(Round the percentage of sales to four decimal places and the pro forma income statement amounts to the nearest? dollar.)

 

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+

 

Copy to Clipboard...

 

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Pro Forma Income Statement

Metroline Manufacturing, Inc.

for the Year Ended December 31, 2016

(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. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016? income? Explain why. ?(Select from the? drop-down menus.)

The pro forma income statement developed using the fixed and variable cost data projects a

net profit after taxes due to

cost of goods sold and operating expenses. Although the? percent-of-sales method projects a more

estimate of net profit after? taxes, the pro forma income statement that classifies fixed and variable cost is

accurate.

 

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