Sheet1
FIN 310
Chapter 5 Open-Ended Assignment
Note: Please put your answers only in the section below the Bold Red sentence at the end of the Required section below.
ABC Corporation published the following information in its financial statements for its 2020 annual report:
ABC Corporation
Income Statement
For the Year ended Dec. 31, 2020
Sales 80,000
Cost of goods sold 50,000
Gross profit 30,000
Cash operating expenses 9,000
Depreciation 3,000
Total operating expenses 12,000
Earnings before interest and taxes 18,000
Interest expense 720
Earnings before taxes 17,280
Income tax expense 5,357
Net income 11,923
ABC Corporation
Balance Sheet
Dec. 31, 2020
Cash 9,000
Short-term Investments 5,000
Accounts receivable 12,000
Inventory 10,000
Fixed assets, net 24,000
Total assets 60,000
Accounts payable 8,000
Accrued liabilities 3,000
Bonds payable 12,000
Common stock 22,000
Retained earnings 15,000
Total liabilities & equity 60,000
Additional Information
1. Sales in 2021 are estimated to be $104,000.
2. Cost of goods sold are considered to be variable costs.
3. $5,000 of the cash operating expenses for 2020 are considered variable costs, and the remainder are fixed costs.
4. Depreciation is, of course, considered to be a fixed cost.
5. Cash, accounts receivable, inventories, accounts payable, and accrued payables are considered to be spontaneous items.
6. Short-term investments, net fixed assets, bonds payable, and common stock are discretionary.
7. $5,000 of bonds payable at the end of 2020 are considered "cu
ent liabilities," and will be repaid on January 1, 2021. The interest rate on the bonds for 2021 will remain the same as it was in 2020.
8. The company will purchase fixed assets of $3,600 in 2021, but overall depreciation for 2021 will remain the same dollar amount as it was for 2020.
9. The firm paid a dividend of $4,000 in 2020, and will maintain its 2020 dividend payout ratio for 2021.
10. The income tax rate for 2021 is expected to be the same as it was in 2020.
Required:
A. Prepare the 2021 pro-forma income statement for ABC Corporation.
B. Prepare the 2021 pro-forma balance sheet for ABC Corporation.
Your answers to this open-ended assignment should be placed in the space below this line.
A ABC Corporation
Proforma Income Statement
For the Year ended Dec. 31, 2021
Sales
Cost of goods sold
Gross profit
Cash operating expenses
Depreciation
Total operating expenses
Earnings before interest and taxes
Interest expense
Earnings before taxes
Income tax expense
Net income
B ABC Corporation
Pro-forma Balance Sheet
Dec. 31, 2021
Cash
Short-term Investments
Accounts receivable
Inventory
Fixed assets, net
Total assets
Accounts payable
Accrued liabilities
Bonds payable
External financing needs
Common stock
Retained earnings
Total liabilities & equity
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