Financial Information : Pro Forma Income Statements

NOTE: In addition to the in-chapter and end-of-chapter exercises which serve as short cases you will find the following short cases arranged by course title that can also be utilized as short cases that require the student to access the authoritative literature to address the issue presented in the case. Solutions to the cases below are available to instructors on the Weirich Accounting & Auditing Research 8e instructor website at www.wiley.com/college/weirich. Other excellent sources of longer and more detailed cases include the Deloitte Trueblood cases and cases provided by various other firms.

SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement

BALANCE SHEET |Dec 1990 |Jan |Feb |Mar |Apr |May |June |July |Aug |Sept |Oct |Nov |Dec | |Cash |175 |556 |724 |175 |175 |175 |175 |175 |175 |175 |175 |175 |175 | |Accts receivable |2,628 |958 |234 |271 |270 |250 |250 |270 |1,603 |3,113 |3,580 |3,982 |3.063 | |Inventory |530 |948 |1,355 |1,749 |2,157 |2,564 |2,971 |3,365 |2,904 |2.314 |1,549 |697 |530 | |Net P/E |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 | |Total Assets |4,403 |3,533 |3,383 |3,265 |3,672 |4,059 |4,466

Operating Taxes & Licenses | 18,613 | 17,989 | 2% | 2% | Insurance & Claims | 13,526 | 13,006 | 2% | 2% | Provision for Depreciation | 2,726 | 2,738 | .3% | .3% | Total Operating Expenses | 848,242 | 775,535 | 97% | 97% | | Operating Income

| Income Summary 280,000 Retained Earnings 280,000 Ending balance $300,000 Beginning balance 100,000 Difference 200,000 Cash dividends $40,000 Stock dividends 40,000 80,000 $280,000

The following additional facts are collected for use in making adjusting entries on December 31 prior to preparing financial statements for the company’s first three months. Journalize the following adjusting journal entries in the General Journal on page 6 and then post them to

After reviewing our income statement for the ended month of September, our revenues were greater than our expenses. For our revenues, our rent revenue totaled $2600; utilities revenue $36; miscellaneous revenue $3,498; and our gain on sale was $515. For our expenses, our rent expense was $1802; utilities expense $80; miscellaneous expense $880; depreciation expense $74.25; other expense $62; property tax expense $258; luxury tax expense $300; and federal income tax expense

The operating expenses include wage and benefits at $1,165,283, supplies at $397,113, services at $710,408, provider fee at $14,778, depreciation and amortization at $102,455, interest at $15,266, and loss impairment at $4,730 which totals $2,410,033 in operating expenses. Their non-operating gains (losses) include investment income at $190,727, unrealized loss on trading portfolio at ($51,301), contributions at $971, market adjustments on interest rate swaps at ($1,657), excess of revenues over expenses at $ 293,522, and less excess of revenues over expenses attributable to non-controlling interest at ($1,952) which totals $291,570 of the excess of revenues over expenses attributable to controlling

INVESTools should definitely capitalize these expenses. The practice of not capitalizing these expenses has led to routine recording of net losses

Adjusted operating expenses went up by $312 million, or 4.8% compared to 2014. Adjusted operating income became $1.8 billion which is higher by 3.4%. $116 million was for adjusted interest expense. Adjusted net earnings were $1.1 billion, an increase of $66 million, or 6.4%, compared to the same period last year.

For the quarter that ended September 30, 2015, the company reported a recurring revenue of 131.8 million dollars, a 23 percent increase, as well as a total revenue of 155.3 million dollars, a 22 percent increase, compared to the third quarter of the previous year. GAAP net income for 2015 third quarter was 5.9 million dollars as compared to that of the previous year, which was 19.7 million dollars (Chen 2013). Incorporated in the GAAP net income for three and nine months that ended in September 30, 2014, was at one time 12.1 million dollars tax for development and research activities for state and federal income tax purposes. Non-GAAP net income for 2015 third quarter, which excludes amortization of acquired intangible assets and stock-based compensation expense, was 20.5 million dollars (Chen 2013). Non-GAAP net income for 2014 third quarter, which excludes amortization of acquired intangible assets, stock-based compensation expense, and income tax benefit for development and research tax credits, was 14.8 million dollars

For our pro forma, we first began with the income statement. To determine Sales, we assumed an increase at a consistent rate each year. COGS and operating expenses were estimated as a percentage of Sales. Exceptional Costs and Restructuring Costs were not considered since pro forma statements exclude unusual and nonrecurring transactions. With these figures, we were able to determine our Profit Before Tax (PBT). For our tax expense, we assumed a constant tax rate. By subtracting the Tax Expense from our PBT we determined the Profit/(loss) After Tax. Lastly, we subtracted dividends, which remained unchanged each year, from the Profit/(loss) After Tax to find the company’s Retained Earnings. Below is a diagram illustrating these steps:

1994 Liabilities and Equity Short-term borrowings Accounts payable Progress collections and price adjustments accrued Dividends payable Taxes accrued Other costs and expenses accrued Current liabilities Long-term borrowings Other liabilities Total liabilities Minority interest in equity of consolidated affiliates Preferred stock Common stock Amounts received for stock in excess of par value Retained earnings Deduct common stock held in treasury Total shareowners’ equity Total liabilities and equity $644.9 696.0 1,000.5 72.8 337.2 1,128.1 $3,879.5 1,195.2 518.9 5,593.6 $ 71.2 $ — $465.2 414.5 3,000.5 $3,880.2 (175.9 ) $3,704.3 $9,369.1 $665.2 673.5 718.4 72.7 310.0 1,052.6 $3,492.4 917.2 492.1 4,901.7 50.1 — $463.8 409.5 2,683.6 $3,556.9 (184.5 ) $3,372.4 $8,324.2 $ $120.6 376.2 300.5 58.7 318.3 392.6 $1,566.9 364.1 221.0 2,152.0 41.4 — $455.8 266.9 1,384.5 $2,107.2 — $2,107.0 $4,300.6 1993 1985

YEAR 0 2009 1 2010 2 2011 3 2012 4 2013 5 2014 6 2015 7 2016 8 2017 9 2018 10 Initial Investment Gross Revenue 2 COGS 3 Add'l revenue Less: COGS Loan down payment 4 Loan repayment Depreciation Additional workers Land square required Moving cost 5 Operating Expenses Total Expenses Net Income Before Tax Income Tax Net Income After Tax After Tax Cash Flow ATCF Cummulative ATCF NPV through Year N

From the comparison done of the financial reports, segment wise revenue and statement of assets and liabilities of the financial years 2010 and 201, we can analyse that-