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# Proforma Financial Statements for Stevens Textiles

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This problem requires creating a pro-forma balance sheet to come up with the answers. I have placed the answers from the back of the book in the spreadsheet, but I don't know how to come up with them (i.e. create the sheet).

Stevens Textile's 2004 financial statements are shown below.

Stevens Textile's: Balance sheet as of December 31, 2004
(Thousands of Dollars)

Cash \$1,080 Accounts Payable \$4,320
Receivables \$6,480 Accrurals \$2,880
Inventories \$9,000 Notes Payable \$2,100

Total current assets \$16,560 Total current liabilities \$9,300
Net fixed assets \$12,600 Mortgage bonds \$3,500
Common stock \$3,500
Total assets \$29,160 Retained earnings \$12,860

Total liabilities and equity \$29,160

Stevens Textile's: Income Statement as of December 31, 2004
(Thousands of Dollars)

Sales \$36,000
Operating Costs \$32,440

Earnings before Interest \$3,560
Interest \$460

Earnings before taxes \$3,100
Taxes \$1,240

Net Income \$1,860
Dividends \$837

Suppose 2005 sales are projected to increase by 15 percent over 2004 sales. Determine the additional funds needed.
Assume that the company was operating at full capacity in 2004, that it cannot sell off any of its fixt assets, and that any
required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are
expected to increase by the same percentage as sales. Use the percent of sales method to develop a pro forma balance sheet
and income statement for December 31, 2005. Use an interest rate of 10 percent on the balance debt at the beginning of the year
to compute interest (cash pays no interest). Use the pro forma income statement to determine the addition to retained earnings.

#### Solution Preview

In solving such a problem, the steps are

1. Get the expenses as a % of sale. Operating costs are 90% of sale.
2. Make the profirma income statement - increase sales by 15%. Operating costs are 90% of the new sales value.
3. Interest is given as 10% of the opening debt. Add up notes payable and mortgage bonds. 10% of ...

#### Solution Summary

The solution explains how the prepare proforma financial statements using the percentage of sales method

\$2.19