Consider the following income statement for the Heir Jordan Corporation: HEIR JO

Question

Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales Costs $43,500 34,100 Taxable income Taxes (24%) $9,400 2,256 Net income $. 44 $3,000 Dividends Addition to retained 4,144 earnings The projected sales growth rate is 15 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input a answers as positive values. Do not round intermediate calculations.) HEIR JORDAN CORPORATION Pro Forma Income Statement Sales Costs Taxable income Taxes Net income What is the projected addition to retained earnings? (Do not round intermediate calculations.) Addition to retained earnings

Explanation / Answer

Note: Please apply rounding off numbers as per your requirement

Payout ratio = Dividend paid / Net income

Payout ratio = $3000 / $7144

Payout ratio = 41.9933%

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1.

Particulars

Proforma

Sales

50,025

Costs

39,215

Taxable income

10,810

Taxes @24%

2,594.40

Net Income

8,215.60

Working:

Particulars

Proforma

Operation

Previous

Sales

50,025.00

=43500*(1+15%)

43,500.00

Costs

39,215.00

=34100*(1+15%)

34,100.00

Taxable income

10,810.00

    9,400.00

Taxes @24%

    2,594.40

@24%

    2,256.00

Net Income

    8,215.60

    7,144.00

Dividend

    3,450.00

@41.9933%

    3,000.00

Addition to retained earnings

    4,765.60

    4,144.00

2.

Projected addition to retained earning = $4,765.60 or ~$4,766

Particulars

Proforma

Sales

50,025

Costs

39,215

Taxable income

10,810

Taxes @24%

2,594.40

Net Income

8,215.60

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