Question 1:
Pro Forma Income Statement and Balance Sheet
Below is the income statement and balance sheet for Blue Bill Corporation for 2013. Based on the historical statements and the additional information provided, construct the firm's pro forma income statement and balance sheet for 2014.
| Blue Bill Corporation |
| Income Statement |
| For the year ended 2013 |
| |
2012 |
2013 |
| Revenue |
$60,000 |
$63,000 |
| Cost of goods sold |
42,000 |
44,100 |
| Gross margin |
18,000 |
18,900 |
| SG&A expense |
6,000 |
6,300 |
| Depreciation expense |
1,800 |
2,000 |
| Earnings Before Interest and Taxes (EBIT) |
10,200 |
10,600 |
| Interest expense |
1,500 |
1,800 |
| Taxable income |
8,700 |
8,800 |
| Income Tax Expense |
3,045 |
3,080 |
| Net income |
5,655 |
5,720 |
| Dividends |
750 |
800 |
| To retained earnings |
$4,905 |
$4,920 |
Additional income statement information:
Sales will increase by 5% in 2014 from 2013 levels.
COGS and SG&A will be the average percent of sales for the last 2 years.
Depreciation expense will increase to $2,200.
Interest expense will be $1,900.
The tax rate is 35%.
Dividend payout will increase to $850.
| Blue Bill Corporation |
| Balance Sheet |
| December 31, 2013 |
| |
2013 |
| Current assets |
|
| Cash |
$8,000 |
| Accounts receivable |
3,150 |
| Inventory |
9,450 |
| Total current assets |
20,600 |
| Property, plant, and equipment (PP&E) |
28,500 |
| Accumulated depreciation |
16,400 |
| Net PP&E |
12,100 |
| Total assets |
$32,700 |
| |
|
| Current liabilites |
|
| Accounts payable |
$3,780 |
| Bank loan (10%) |
3,200 |
| Other current liabilities |
1,250 |
| Total current liabilities |
8,230 |
| Long-term debt (12%) |
4,800 |
| Common stock |
1,250 |
| Retained earnings |
18,420 |
| Total liabilities and equity |
$32,700 |
Additional balance sheet information:
The minimum cash balance is 12% of sales.
Working capital accounts (accounts receivable, accounts payable, and inventory) will be the same percent of sales in 2014 as they were in 2013.
$8,350 of new PP&E will be purchased in 2014.
Other current liabilities will be 3% of sales in 2014.
There will be no changes in the common stock or long-term debt accounts.
The plug figure (the last number entered that makes the balance sheet balance) is bank loan.
Question 2: Cash Budget
Sales for Blue Bill Corporation are projected as follows for the months of June through November:
| June |
$200,000 |
| July |
200,000 |
| August |
200,000 |
| September |
300,000 |
| October |
500,000 |
| November |
200,000 |
Credit sales account for 70% of the monthy sales and are collected one month after the sale.
Other receipts for October are $50,000.
Variable disbursements are 60% of sales each month.
Fixed disbursements are $10,000 each month.
$80,000 should be included in August for taxes.
The company is obligated to make a $400,000 debt repayment in November.
Beginning cash in June is $50,000.
Desired ending cash each month is $10,000.Accurately projected line items for the income statement and balance sheet (yellow highlighted cells)
Accurately performed need mathematical operations in the balance sheet and income statement (blue cells).