Chapter 4, Problem 20

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Provincial Imports, Inc,
Actual and Pro Forma Income Statements
Prepared Using the Judgement Approach
For the Year Ended Dec 31
2008 Actual2009 Pro FormaCalculations
Sales revenue5,000,0006,000,0005,000,000 x 1.2
Less: Cost of goods sold 2,750,0003,210,0006,000,000 x 0.535 Gross margin2,250,0002,790,000
Less: Operating expenses 862,0001,026,0006,000,000 x 0.171 Less: Amortization88,000110,000Given
Operating earnings1,300,0001,654,000
Less: Interest expense 100,00092,000Given
Earnings before taxes1,200,0001,562,000
Less: Taxes 480,000562,320 1,562,000 x 0.36
Net income after taxes (profit margin)720,000999,680
Less: Common share dividends 288,000399,872999,680 x 0.40 Reinvested profits (to retained earnings)432,000599,808

Provincial Imports, Inc,
Actual and Pro Forma Balance Sheets
Prepared Using the Judgement Approach
As at Dec 31
2008 Actual2009 Pro FormaCalculations
Cash 200,000200,000Unchanged
Marketable securities275,000275,000Unchanged
Accounts receivable 625,000723,288(6,000,000 / 365) x 44 Inventories500,000571,644(3,210,000/ 365) x 65
Total current assets1,600,0001,769,932
Net fixed assets1,400,0001,776,0001,400,000 + 486,000 – 110,000 Total assets 3,000,0003,545,932

Liabilities and equity
Accounts payable 700,000747,534(3,210,000/365) x 85
Taxes payable95,000168,696562,320 x 0.30
Line of credit200,00024,894200,000 - 175,106 *(surplus)
Other current liabilities5,0005,000Unchanged
Total current liabilities1,000,000946,124
Long-term debt550,000550,000Unchanged
Shareholder’s equity
Common shares75,00075,000Unchanged
Retained earnings1,375,0001,974,8081,375,000 + 599,808
Total liabilities and equity3,000,0003,545,932

Provincial Imports, Inc,
Calculation of External Financing Required (EFR)
Based on the Judgement Approach
For the Forecast Year Ended Dec 31, 2009
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