Nike Inc. (NYSE:NKE) reported the following 2015 income statement ($ thousands).

Question

Nike Inc. (NYSE:NKE) reported the following 2015 income statement ($ thousands). Mr. Chenjun Zhao, an assistant financial analyst of Shanghai Investment Trust Co. a Shanghai, China-based finance company is asked to project 2016 operating income assuming a 12% decrease in sales. He assumes that the 2015 percentages of expenses to total revenue continue to hold in 2016. He intends to forecast the accounting items based on the percentage-of-sale method. He directs you as his subordinates to complete the following forecasts. Make sure to show all of your supporting calculations.

Explanation / Answer

Answer:

5/31/2015 % to total revenue 5/31/2016 1 Total Revenue 20862000 100% 18358560 (Decreased by 12%) 2 Cost of revenue 11354000 54.42% 9991520 (Revenue*54.42%) (1-2) Gross profits 9508000 8367040 3 Selling, Gen. and admin exp. 6693000 32.08% 5889840 (Revenue*32.08%) 4 Other Operating Income 33000 0.16% 29040 (Revenue*0.16%) 5 Operating Income 2848000 2506240 (Ans)

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