Chapter 4, Problem 4.16P

a)

Summary Introduction

To calculate: Pro forma income statement using percent of sales method.

Introduction:

A reports that shows the revenues and expenses from business operations and the result of those operations as net income or net loss for a particular timeframe is referred to as income statement.

b)

Summary Introduction

To explain: The manner in which percent-of-sales method can result in the overstatement of profits for the pessimistic prediction case and understatement of income for the optimistic and most likely cases.

Introduction:

A reports that shows the revenues and expenses from business operations and the result of those operations as net income or net loss for a particular timeframe is referred to as income statement.

c)

Summary Introduction

To calculate: Pro forma income statement using fixed and variable costs.

Introduction:

A reports that shows the revenues and expenses from business operations and the result of those operations as net income or net loss for a particular timeframe is referred to as income statement.

d)

Summary Introduction

To compare: The findings of Pro forma income statement using percent of sales method and using fixed and variable costs.

Introduction:

A reports that shows the revenues and expenses from business operations and the result of those operations as net income or net loss for a particular timeframe is referred to as income statement.