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    Pro-forma financial statements

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    I need help with a pro forma problem. Attached you will find the income statement, balance sheet and problem. Please let me know if you need additional information.

    Thank you so much for your help!

    Data Item Value
    Sales revenue 6,500,000
    Min. cash balance 25,000
    Inventory turnover (times) 7
    Average collection period 50 days
    Fixed-asset purchases 400,000
    Total dividend payments (preferred and common) $20,000
    Depreciation expense $185,000
    Interest expense $97,000
    Accounts payable increase 20%
    Accruals and long-term debt unchanged
    Notes payable, preferred and common stock unchanged

    TO DO:
    1. Use the historical and projected financial data provided to prepare a pro forma income statement for the year ended Dec. 31, 2007. (HINT: Use
    the percent-of-sales method to estimate all values except depreciation expense and interest expense, which have been estimated by management
    and included in the table)
    2. Use the projected financial data along with relevant data from the pro forma income statement prepared in part a to prepare the pro forma balance
    sheet at Dec. 31, 2007. (HINT: Use the judmental approach)
    3. Will Martin Manufacturing Company need to obtain external financing to fund the proposed equipment modernization program? Explain.

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    Solution Preview

    Please see the attached file.

    Martin Manufacturing Company
    Pro Forma Income Statement
    for the Year Ended December 31, 2007
    Sales revenue $6,500,000 100% As given in the question
    Less: Cost of goods sold 4,745,000 (.73 x sales) From 2006 statement
    Gross profits $1,755,000
    Less: Operating expenses
    Selling expense $845,000 From 2006 statement
    General and Administrative Expense $520,000 From 2006 statement
    Depreciation expense 185,000
    Total operating expenses $1,550,000
    Operating ...

    Solution Summary

    The solution explains how to prepare pro-forma financial statements