Integrative: Pro forma statements Morten Metal Limited has assembled past (2020) financial statements (income statement and balance sheet follows) and financial projections for use in preparing financial plans for the coming year (2021) Information related to financial projections for the year 2021 follows. (1) Projected sales are $420,000. (2) Cost of goods sold in 2020 includes $72,000 in fixed costs. (3) Operating expense in 2020 includes $17,500 in fixed costs. (4) Interest expense will be $18,000 in 2021. (5) The firm will pay cash dividend amounting to 25% of net profit after taxes. (6) Cash and inventories are expected to double. (7) Marketable securities, long-term debt, and common stock will remain unchanged. (8) Accounts receivable, accounts payable, and other current liabilities will change in direct response to the change in sales. (9) During the year, the firm will purchase a delivery vehicle costing $25,000. The depreciation expense on the new vehicle for 2021 will be $7,000. (10) The tax rate will remain at 25%. a. Prepare a pro forma income statement for the year ended December 31, 2021, using the fixed cost data given to improve the accuracy of percent-of-sales method. b. Prepare a pro forma balance sheet as of December 31, 2021, using the information provided and the judgmental approach. Include a reconciliation of retained earnings account. c. Analyze these statements, and discuss the resulting external financing required
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Integrative: Pro forma statements Morten Metal Limited has assembled past
(2020) financial statements (income statement and
Information related to financial projections for the year 2021 follows.
(1) Projected sales are $420,000.
(2) Cost of goods sold in 2020 includes $72,000 in fixed costs.
(3) Operating expense in 2020 includes $17,500 in fixed costs.
(4) Interest expense will be $18,000 in 2021.
(5) The firm will pay cash dividend amounting to 25% of net profit after taxes.
(6) Cash and inventories are expected to double.
(7) Marketable securities, long-term debt, and common stock will remain unchanged.
(8)
direct response to the change in sales.
(9) During the year, the firm will purchase a delivery vehicle costing $25,000. The
(10) The tax rate will remain at 25%.
a. Prepare a pro forma income statement for the year ended December 31, 2021, using the fixed cost data given to improve the accuracy of percent-of-sales method.
b. Prepare a pro forma balance sheet as of December 31, 2021, using the information provided and the judgmental approach. Include a reconciliation of
c. Analyze these statements, and discuss the resulting external financing required
*Kindly give detailed explanations on how cost of goods sold, operating expenses, accounts receivables, accounts payables, net fixed assets, taxes payable are calculates
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