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# Financial Management: Preparing Income Statements

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Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION
Income Statement
Sales \$43,800
Costs 34,800
Taxable income \$9,000
Taxes (35%) 3,150
Net income \$5,850
Dividends \$3,300

The projected sales growth rate is 12 percent.

Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant.

HEIR JORDAN CORPORATION
Pro Forma Income Statement
Sales \$
Costs
Taxable income \$
Taxes
Net income \$

What is the projected addition to retained earnings?

Retained earnings \$

#### Solution Preview

Payout Ratio=3300/5850=56.41%

Pro Forma Income Statement
Sales 43800*(1+12%) ...

#### Solution Summary

Solution prepares a pro forma income statement with the help of given projections. It also calculates the net addition to the retained earnings.

\$2.19