Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 4, Problem 4.21P
Learning Goal 5
P4-21 Integrative: Pro forma statements Provincial Imports Inc. has assembled past (2019) financial statements (income statement and balance sheet below) and financial projections for use in preparing financial plans for the coming year (2020).
Provincial Imports Inc. Income Statement for the Year Ended December 31, 2019
| Sales revenue | $5,000,000 |
| Less: Cost of goods sold | 2,750,000 |
| Gross profits | $2,250,000 |
| Less: Operating expenses | 850,000 |
| Operating profits | $1,400,000 |
| Less: Interest expense | 200,000 |
| Net profits before taxes | $1,200,000 |
| Less: Taxes (rate = 40%) | 480,000 |
| Net profits after taxes | $ 720,000 |
| Less: Cash dividends | 288,000 |
| To |
$ 432,000 |
Information related to financial projections for the year 2020 is as follows:
- 1. Projected sales are $6,000,000.
- 2. Cost of goods sold in 2019 includes $1,000,000 in fixed costs.
- 3. Operating expense in 2019 includes $250,000 in fixed costs.
- 4. Interest expense will remain unchanged
- 5. The firm will pay cash dividends amounting to 40% of net profits after taxes.
- 6. Cash and inventories will double.
- 7. Marketable securities, notes payable, long-term debt, and common stock will remain unchanged.
- 8. Accounts receivable, accounts payable, and other current liabilities will change in direct response to the change in sales
- 9. A new computer system costing $356,000 will be purchased during the year. Total
depreciation expense for the year will be $110,000. - 10. The tax rate will remain at 40%.
- a. Prepare a pro forma income statement for the year ended December 31, 2020, using the fixed cost data given to improve the accuracy of the percent-of-sales method.
- b. Prepare a pro forma balance sheet as of December 31, 2020, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account.
- c. Analyze these statements, and discuss the resulting external financing required.
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Chapter 4 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 4.1 - Prob. 4.1RQCh. 4.1 - Prob. 4.2RQCh. 4.2 - Briefly describe the first four modified...Ch. 4.2 - Describe the overall cash flow through the firm in...Ch. 4.2 - Prob. 4.5RQCh. 4.2 - 4-B Why is depreciation (as well as amortization...Ch. 4.2 - Prob. 4.7RQCh. 4.2 - Prob. 4.8RQCh. 4.2 - Prob. 4.9RQCh. 4.3 - Prob. 4.10RQ
Ch. 4.3 - Prob. 4.11RQCh. 4.3 - Prob. 4.12RQCh. 4.3 - What is the cause of uncertainty in the cash...Ch. 4.4 - Prob. 4.14RQCh. 4.5 - Prob. 4.15RQCh. 4.5 - Prob. 4.16RQCh. 4.6 - Prob. 4.17RQCh. 4.6 - What is the significance of the plug figure,...Ch. 4.7 - Prob. 4.19RQCh. 4.7 - Prob. 4.20RQCh. 4 - Opener-in-Review The chapter opener described a...Ch. 4 - Learning Goals 2, 3 ST4-1 Depreciation and cash...Ch. 4 - Prob. 4.2STPCh. 4 - Prob. 4.3STPCh. 4 - Prob. 4.1WUECh. 4 - Prob. 4.2WUECh. 4 - Learning Goal 3 E4-3 Determine the operating cash...Ch. 4 - Prob. 4.4WUECh. 4 - Learning Goal 5 E4-5 Rimier Corp. forecasts sales...Ch. 4 - Prob. 4.1PCh. 4 - Learning Goal 2 P4-2 Depreciation In early 2019,...Ch. 4 - Prob. 4.3PCh. 4 - Learning Goals 2, 3 P4-4 Depreciation and...Ch. 4 - Learning Goal 3 P4-5 Classifying inflows and...Ch. 4 - Prob. 4.6PCh. 4 - Learning Goal 4 P4-8 Cash receipts A firm has...Ch. 4 - Learning Goal 4 P4-9 Cash disbursements schedule...Ch. 4 - Learning Goal 4 P4-10 Cash budget: Basic Grenoble...Ch. 4 - Prob. 4.11PCh. 4 - Learning Goal 4 P4-12 Cash budget: Advanced The...Ch. 4 - Prob. 4.13PCh. 4 - Prob. 4.14PCh. 4 - Learning Goal 4 P4-15 Multiple cash budgets:...Ch. 4 - Learning Goal 5 P4-16 Pro forma income statement...Ch. 4 - Learning Goal 5 P4-17 Pro forma income statement:...Ch. 4 - Learning Goal 5 P4-18 Pro forma balance sheet:...Ch. 4 - Learning Goal 5 P4-19 Pro forma balance sheet...Ch. 4 - Learning Goal 5 P4-20 Integrative: Pro forma...Ch. 4 - Learning Goal 5 P4-21 Integrative: Pro forma...Ch. 4 - Prob. 4.22PCh. 4 - Prob. 1SE
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