Fin350 Week 3 Module 3 Practice Problems Essay

726 Words Feb 17th, 2016 3 Pages
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Essay Sample: Page 2
Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $70,000 in cash dividends during 2016. Metroline Manufacturing’s income statement for the year ended December 31, 2015, and a breakdown of the firm’s cost of goods sold and operating expenses into their fixed and variable components are given below.

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

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.

c. Compare and contrast the statements developed in parts a and b. Which statement probably provides the better estimate of 2016 income? Explain why.



P4–18 Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b.

(1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3%

(2) Marketable securities and other current liabilities are expected to remain unchanged.

(3) A minimum cash balance of $480,000 is desired.

(4) A new machine costing $650,000 will be acquired in 2016, and equipment costing $850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as
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