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Pro-forma financial statements


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

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