A company anticipates revenues next year of $3,000,000. Interest expense is expe

Question

A company anticipates revenues next year of $3,000,000. Interest expense is expected to remain the same at $50,000. The company expects to pay $40,000 in cash dividends.

Below is the Income Statement as of December 31, 2014.

Prepare a Pro-Forma income statement for December 31, 2015 using the percentage of sales method.

ACTUAL 2014

Sales Revenue $1,700,000

COGS $1,105,000

Gross Profits $595,000

Operating Expenses $120,000

EBIT $475,000

Interest Expense $50,000

EBT $425,000

Tax $170,000

Dividends $15,000

To Retained Earnings $240,000

Explanation / Answer

tax rate = tax/EBT

Item 2014 as a %age of sales 2015 Sales revenue 1700000 3000000 COGS 1105000 0.65 =sales*.65 1950000 Gross profits 595000 =sales-COGS 1050000 Operating expenses 120000 0.070588235 =Sales*0.07058 211764.7 EBIT 475000 =Gross profits - opex 838235.3 Interest expense 50000 50000 EBT 425000 =EBIT - interest 788235.3 Tax 170000 0.4 =EBIT*(1 - tax rate) 315294.1 Dividend 15000 40000 Retained earnings 240000 =EBT - tax - dividend 432941.2

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