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| Windswept, Incorporated |
| 2021 Income statement (in millions) |
| Sales | | $ 9,460 |
| COGS | | $ 7,710 |
| Dep | | $ 460 |
| EBIT | | $ 1,290 |
| Interests | | $ 102 |
| Taxable income | | $ 1,188 |
| Tax | | $ 249 |
| Net income | | $ 939 |
| | | Windswept, Incorporated | | |
| | | 2020 and 2021 Balance Sheets (in millions) | | |
| | | 2020 | 2021 | | | | 2020 | 2021 |
| Current assets | | | | | Current liabilities | | |
| Cash | | $ 220 | $ 250 | | Accounts payable | $ 1,330 | $ 1,360 |
| Accounts receivable | | $ 980 | $ 880 | | Long-term debt | | $ 1,090 | $ 1,290 |
| Inventory | | $ 1,780 | $ 1,680 | | Common stock | | $ 3,320 | $ 3,220 |
| Total CA | | $ 2,980 | $ 2,810 | | Retained earnings | $ 630 | $ 880 |
| Net fixed assets | | $ 3,390 | $ 3,940 | | | | | |
| Total assets | | $ 6,370 | $ 6,750 | | Total liabilities and equity | $ 6,370 | $ 6,750 |
The company has predicted a sales increase of 20 percent.
The company pays out half of its net income in the form of a cash dividend (or the dividend payout ratio is 50%).
Costs and current assets vary with sales, but fixed assets, depreciation, interest expenses, debt, and equity do not.
Use the information shown above, and find the answer to the following questions:
a. Prepare the pro forma income statements.
b. Construct the pro forma balance sheets.
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