Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales $ 48,800 Costs 34,800 Taxable income $ 14,000 Taxes (30%) 4,200 Net income $ 9,800 Dividends $ 3,200 Addition to retained earnings 6,600 The projected sales growth rate is 18 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all amounts as positive values. Do not round intermediate calculations.) HEIR JORDAN CORPORATION Pro Forma Income Statement Sales $ 57,584 ± 0.1% Costs 41,064 ± 0.1% Taxable income $ 16,520 ± 0.1% Taxes 4,956 ± 0.1% Net income $ 11,564 ± 0.1% What is the projected addition to retained earnings? (Do not round intermediate calculations.) Addition to retained earnings $ 7,788 ± 0.1%

Taxes (30%) = $4,956 The payout ratio is constant, so the dividends paid this year is the payout ratio from last year times net income, or: Dividends = ($3,200 / $9,800)($11,564) Dividends = $3,776 And the addition to retained earnings will be: Addition to retained earnings = $11,564 – 3,776 Addition to retained earnings = $7,788 More test answers on https://studyhippo.com/fin-323-chapter-4-homework-practice-for-exam/

The importance of the pro forma income statement is to provide a projection of how much _____ is anticipated over the ensuing time period.

profit More test answers on https://studyhippo.com/ch-4-financial-forecasting/

preparation of which of the following is the most logical first step in developing an annual operating plan (a) a sales forecast by product (b) a production schedule by product (c) a flow-of-funds statement by product (d) a plant and equipment requirement forecast (e) a pro forma income statement and balance sheet

A. a sales forecast by product More test answers on https://studyhippo.com/management-clep-practice-questions/

8/8 Pro Forma Income Statement

a. The pro forma income statement is the culmination of the operating budget process. b. The pro forma income statement is used to decide whether the budgeted activities will result in an acceptable level of income. If the initial pro forma income shows a loss or an unacceptable level of income, adjustments can be made to the component parts of the master budget. More test answers on https://studyhippo.com/chapter-16-2011-bec-cpa/

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Pro Forma Income Statement Flashcards, test questions and answers

Q: A pro forma income statement ?

forecasts revenue and expenses for a future period More test answers on https://studyhippo.com/hmgt-final-set-2/

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What is Pro Forma Income Statement?

A Pro Forma Income Statement is a financial statement used to forecast future performance of a company. It is created by projecting income and expenses for a set period of time, usually one year or more. A pro forma income statement can be used to analyze the potential profitability of a new project and help manage current operations. This statement provides an overview of projected revenues, expenses, profits, and losses over the specified period.The pro forma income statement begins with sales revenue from the sale of goods or services. This figure is then subtracted from the cost of goods sold (COGS) to get gross profit. Operating expenses such as wages, rent/utilities, advertising, depreciation/amortization are then subtracted from gross profit to arrive at operating profit (or loss). Finally non-operating items such as interest expense are subtracted to arrive at net profit (or loss). These figures give users insight into how efficiently their business will be performing during the specified period and provide important information when making decisions about operations and investments.In order to create an accurate pro forma income statement it’s important that all data used is up-to-date and realistic in order to get an accurate picture of future performance. It’s also important that any assumptions made are clearly stated so that readers understand where the figures have come from.