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Consider the following income statement for the Heir Jordan Corporation:

HEIR JORDAN CORPORATION Income Statement

Sales $47,600
Costs 35,600
Taxable income $12,000
Taxes (30%) 3,600
Net income $8,400
Dividends $2,000
Addition to retained earnings 6,400

The projected sales growth rate is 18 percent.

Required:
Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant.

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Answer:

HEIR JORDAN CORPORATION

Pro-forma Income Statement

Sales ($47,600  × 1.18)                            $56,168

Less Costs ($35,600 × 1.18)                ($42,008)

Profit Before Tax                                    $14,160

Income Tax Expense                              $4,248

Net Income                                              $9,912

Explanation:

A proforma income statement contains projected Sales, Expenses and Profit. Our proforma Income Statement in this question is based on a sales growth of 18%.

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