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Pro Forma Income Statement and Balance Sheet for Blue Bill Corporation, based on the provided historical statements and additional data, need to be constructed for the year 2014. The assignment involves projecting revenues, costs, and other financial variables by applying growth rates and ratios derived from the previous year's data. It also requires estimating asset, liability, and equity accounts adjusted for planned investments, changes in working capital, and new financing, ensuring the balance sheet balances appropriately. The project incorporates assumptions regarding sales growth, expense ratios, fixed asset investments, and working capital requirements, guided by specified minimum cash balances and other constraints.

Paper For Above instruction

The task of preparing a pro forma income statement and balance sheet for Blue Bill Corporation for 2014 involves a systematic approach to forecasting and financial modeling. The process begins with analyzing 2013 data to identify key metrics, ratios, and growth trends that inform projections. Based on the instruction, sales are expected to increase by 5%, which serves as the primary driver for revenue forecasts. Accordingly, the projected revenue for 2014 will be calculated as $60,000 * 1.05 = $63,000.

Next, the gross margin and expense components are estimated using their average proportions of sales for 2012 and 2013. In 2013, cost of goods sold (COGS) was $42,100, and gross margin was $18,900, indicating a COGS-to-sales ratio of roughly 70.17%. Applying this ratio to the projected sales yields a COGS of approximately $44,201 (i.e., 70.17% of $63,000). The gross margin, therefore, is projected as $63,000 - $44,201 = $18,799.

Similarly, the Selling, General, and Administrative Expenses (SG&A) of $6,300 in 2013 represented about 10.5% of sales ($6,300/$60,000). Maintaining this ratio for 2014, the SG&A expense would be approximately $6,615 (10.5% of $63,000). Depreciation expense is specified to increase to $2,200 from $1,000, reflecting a planned investment or depreciation adjustment, which is straightforward. Interest expense is projected at $1,900, based on the given assumption.

Calculating Earnings Before Interest and Taxes (EBIT) involves subtracting expenses from gross margin: $18,799 - $6,615 - $2,200 = approximately $10,000. Accounting for interest expense ($1,900) provides taxable income of roughly $8,100. Applying the 35% tax rate yields income tax expense of about $2,835, resulting in net income of approximately $5,265.

Dividends for 2014, expected to increase to $850, are deducted from net income to determine the retained earnings addition: $5,265 - $850 = $4,415. This addition is added to the beginning retained earnings of $18,420 to estimate year-end retained earnings of approximately $22,835.

On the balance sheet side, current assets are projected based on sales growth and maintaining their previous ratios of sales. Cash, for example, must be at least 12% of sales, equating to around $7,560 in 2014. Accounts receivable, inventory, and other current assets are each maintained relative to sales, with their ratios calculated from 2013 data: accounts receivable ($3,150/$60,000 ≈ 5.25%), inventory ($9,450/$60,000 ≈ 15.75%), and total current assets ($20,600/$60,000 ≈ 34.33%). Applying these ratios to the projected sales yields corresponding balances for 2014.

The accounts payable is projected as 6.3% of sales, matching its ratio in 2013 ($3,780/$60,000). Other current liabilities are set at 3% of sales, consistent with the given assumptions. The minimum cash balance is enforced as 12% of sales, ensuring liquidity.

Long-term debt balances are assumed unchanged at $4,800 unless new financing or repayments are specified. Capital expenditures involve an additional $8,350 worth of property, plant, and equipment in 2014, accounted for by increasing net PP&E accordingly, considering depreciation.

Total assets balance with total liabilities and equity, with the plug figure to balance the sheet being the bank loan, which is adjusted to ensure the balance sheet totals match. Equity components—common stock and retained earnings—are maintained, with retained earnings updated based on net income and dividends paid.

In conclusion, constructing the 2014 pro forma financial statements requires integrating growth assumptions, expense ratios, asset and liability relationships, specific investment plans, and adherence to constraints like minimum cash balances. The resulting financial projections facilitate planning, decision-making, and financial analysis for Blue Bill Corporation, supporting strategic initiatives and stakeholder communication.

References

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• Wikipedia contributors. (2020). Pro forma financial statements. Wikipedia. https://en.wikipedia.org/wiki/Pro_forma_financial_statements