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Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement   Sales $ 47,900   Costs 33,900   Taxable income $ 14,000   Taxes (21%) 2,940   Net income $ 11,060      Dividends $ 2,300      Addition to...

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Finance

Consider the followingincome statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION
Income Statement
  Sales$47,900
  Costs33,900
  Taxable income$14,000
  Taxes (21%)2,940
  Netincome$11,060
     Dividends$2,300
     Addition to retained earnings8,760

The projected salesgrowth rate is 12 percent.

Prepare a pro formaincome statement assuming costs vary with sales and the dividendpayout ratio is constant.

Answer & Explanation Solved by verified expert
3.7 Ratings (309 Votes)

Given that
HEIR JORDAN CORPORATION
Income Statement
  Sales 47,900
  Costs 33,900
  Taxable income 14,000
  Taxes (21%) 2,940
  Net income 11,060
     Dividends $ 2,300
     Addition to retained earnings 8,760
Cost as % of sales = 33900/47900 70.77%
Dividend payout ratio =2300/11060 20.80%
Performa statement
HEIR JORDAN CORPORATION
Income Statement
i   Sales 47900*112% 53,648
ii=70.77% *i   Costs 37,968
iii=i-ii   Taxable income 15,680
iv=iii*21%   Taxes (21%) 3,293
v=iii-iv   Net income 12,387
vi=v*20.80%      Dividends $ 2,576
vii=v-vi      Addition to retained earnings 9,811

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Transcribed Image Text

Consider the followingincome statement for the Heir Jordan Corporation:HEIR JORDAN CORPORATIONIncome Statement  Sales$47,900  Costs33,900  Taxable income$14,000  Taxes (21%)2,940  Netincome$11,060     Dividends$2,300     Addition to retained earnings8,760The projected salesgrowth rate is 12 percent.Prepare a pro formaincome statement assuming costs vary with sales and the dividendpayout ratio is constant.

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