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    Percent of sales method in pro forma balance sheet

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    1. Sales will increase by 25% next year.
    2. The following balance sheet items will increase in direct relation to sales:
    a. Cash
    b. Accounts Receivable
    c. Inventory
    d. Fixed Assets
    e. Accounts Payable
    3. Management forecasts that Notes payable will need to increase by $1,000,000 to support the increase in sales.
    4. Management forecasts that Earnings after Taxes will be $2,750,000 next year.
    5. The company intends to pay the same amount of dividends next year.

    Balance Sheet as of December 31, 2005
    Assets Liabilities & Equity
    Cash $ 1,000,000 Accounts Payable $ 3,000,000
    Accounts Receivable 4,000,000 Notes Payable 2,000,000
    Inventories 8,000,000 Total Current Liabilities $ 5,000,000
    Total Current Assets $13,000,000 Long-Term Debt 1,000,000
    Fixed Assets, Net 2,000,000 Stockholder's Equity 9,000,000
    Total Assets $15,000,000 Total Liabilities and Equity $ 15,000,000

    Income Statement for the Year Ended December 31, 2005
    Sales $ 30,000,000
    Operating Expenses, Interest and Taxes 28,500,000
    Earnings after Taxes $ 1,500,000
    Dividends Paid $ 250,000

    Financial Ratios
    Current Ratio 2.60
    Debt Ratio 40%
    Return on Stockholder's Equity 16.7%
    Net Profit Margin on Sales 5.0%
    Balance Sheet as of December 31, 2006
    Assets Liabilities & Equity
    Cash Accounts Payable
    Accounts Receivable Notes Payable
    Inventories Total Current Liabilities
    Total Current Assets Long-Term Debt
    Fixed Assets, Net Stockholder's Equity
    Total Assets Total Liabilities and Equity

    Income Statement for the Year Ended December 31, 2006
    Sales
    Operating Expenses, Interest and Taxes
    Earnings after Taxes
    Dividends Paid

    Financial Ratios
    Current Ratio
    Debt Ratio
    Return on Stockholder's Equity
    Net Profit Margin on Sales

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    https://brainmass.com/business/financial-statements/percent-of-sales-method-in-pro-forma-balance-sheet-income-statement-and-ratios-217671

    Solution Preview

    Please see the attached Excel document. Details on calculations and the relationships between cells are entered in the perspective cells.

    Operating Expenses, Interest and Taxes 28,500,000 34,750,000
    Earnings after Taxes 1,500,000 2,750,000 ...

    Solution Summary

    The percent of sales method in pro forma balance sheet, income statement and ratios is determined.

    $2.19