Assignment
You are a consultant, external to this firm. Create two years(2020 and 2021) of pro forma income statements and balance sheetsand the statement of cash flows, including operating, investing andfinancing sections for 2020 only.
Techno Corporation
Techno Corp
Income Statement
Actual results 2019 for 12 months ending December 31,2019
| Sales revenue (10,000 units at $250 each) | $2,500,000 |
| Cost of goods sold ($100 per unit) | ($1,000,000) |
| Gross profit | $1,500,000 |
| |
| Operating expenses | ($500,000) |
| Operating profit | $1,000,000 |
| |
| Interest expense | ($200,000) |
| Net profits before taxes | $800,000 |
| |
| Taxes (30%) | ($240,000) |
| Net profits after tax | $560,000 |
| |
| Dividends on common stock | $224,000 |
Techno Corp
Balance Sheet
December 31, 2019
| ASSETS | $500,000 |
| Marketable securities | $300,000 |
| Accounts receivable | $500.000 |
| Inventory | $400,000 |
| Total current assets | $1,700,000 |
| |
| Net fixed assets | $2,000,000 |
| Total assets | $3,700,000 |
| |
| LIABILITIES AND STOCKHOLDER’S EQUITY | |
| Accounts payable | $150,000 |
| Taxes payable | $120,000 |
| Notes payable (long-term debt due within one year) | $200,000 |
| Other current liabilities | $200,000 |
| Total current liabilities | $670,000 |
| |
| Long-term debt | $1,800,000 |
| Total liabilities | $2,470,000 |
| |
| Common stock | $500,000 |
| Retained earnings | $730,000 |
| Total liabilities and stockholder’s equity | $3,700,000 |
Techno Corporation Paper
Techno Corporation is developing its pro forma financialstatement forecasts for 2020 and 2021. Its actual results for 2019are shown in the income statement and balance sheet.
Background
- The relationship between cost of goods sold and sales revenueIs expected to continue in the near term and no inflation isexpected.
- Operating expenses include $200,000 in depreciation (fixedexpense), the remainder is variable costs tied to salesrevenue.
- Fixed assets are adequate to support sales growth for the nexttwo years and long=term debt will decline $200,000 per year.
- Dividend policy calls for 40% of net profits after taxes to bepaid before yearend.
- Interest is 10% of long-term debt and notes payable
- Inventory needs to grow at half the rate of sales growth andaccounts receivable maintains the same relationship to sales as wasthe case on December 31, 2019 for 2019 sales. Accounts payablemaintains the same relationship to cost of good sold as of December31, 2019 for 2019 sales.
- Any cash over $500,000 is put in marketable securities,Interest income is negligible
- Other current liabilities are stable.
- Taxes payable are equal to one-half of the current year’staxes.
- Assume sales will increase 10% per year for each of the nexttwo years.
