Problem 15-5 Overview of the Planning Process Hill Propane Distributors wants to
ID: 2723524 • Letter: P
Question
Problem 15-5 Overview of the Planning Process Hill Propane Distributors wants to construct a pro forma balance sheet for 2013. Build the statement using the following data and assumptions. Round your answers to the nearest dollar. Projected sales for 2013 are $35 million. Hill's gross profit margin is 35%. Operating expenses average 11% of sales. Depreciation expense last year was $5 million. Hill faces a tax rate of 30%. Hill distributes 25% of its net income to shareholders as a dividend. Hill wants to maintain a minimum cash balance of $3 million. Accounts receivable equal 9.5% of sales. Inventory averages 10% of the cost of goods sold. Last year's balance sheet lists net fixed assets of $30 million. All of these assets are depreciated on a straight-line basis, and none of them will be fully depreciated for at least three years. Hill plans to invest an additional $1 million in fixed assets that it will depreciate over a 5-year life on a straight-line basis. In 2012, Hill reported common stock and retained earnings of $20 million. Accounts payable average 10% of sales.
Explanation / Answer
Pro Forma Income Statement for 2013:
Proforma Balance Sheet as of December 31, 2013:
$ Sales 35,000,000 Cost of goods sold 22,750,000 Gross profit 12,250,000 Operating expenses 3,850,000 Depreciation expense 5,200,000 Income before taxes 3,200,000 Tax @ 30% 960,000 Net income 2,240,000 Distribution of income as dividends 560,000 Income retained 1,680,000