CHAPTER 3:

UNDERSTANDING THE INCOME STATEMENT

 Outline
1. Components of the income statement
2. Principles of revenue recognition
3. Princilples of expense recognition
4. Non-recuring and non-operating items
5. Earning per share (EPS)
 Components of the income statement
• The income statement reports the revenues and expenses of the firm over a
period of time.
• The income statement equation:

Net
Revenue Expense
Income

• Investors examine a firm’s income statement for valuation purposes while

lenders examine the income statement for information about the firm’s
ability to make the promised interest and principle payments on its debt.
 Components of the income statement
• Revenues (sales, turnover): Amounts reported from the sale of
goods and services in the normal course of business.
• Net revenue: Revenue less adjustments for estimated returns
and allowances (e.g. for estimated returns or for amount
unlikely to be collected).
• Expenses: Amounts incurred to generate revenue and include
cost of goods sold, operating expenses, interest and taxes.
Expenses can be grouped by nature or function.
• Gains and losses: assets inflows and outflows not directly
related to the ordinary activities of the business.
For example, a company sell surplus land, the cost of land is
subtracted from the sales price and the net result is reported as a gain
or a loss.
Components of the income statement
•Gross profit: the amount that remains after the direct costs of
producing a product or service are subtracted from revenue.
•Operating profit: gross profit minus operating expense
(selling, general and administrative expenses)
•Net profit (net income, earning, bottom line): operating
profit minus interest expense and income taxes
•Minority owners’ interest: the pro-rata share of the
subsidiary’s income for the portion of the subsidiary that the
firm does not own.
•Notes: In Vietnam interest expense is classified as operating
expense and therefore operating profit is equal to gross profit
minus S&A expense and interest expense.
IFRS VAS

Items 2004 Items 2004

Net sales 13,700 Net sales

203,862
Cost of goods sold (6,369) Cost of goods sold
(127,947)
Gross profit 7331 Gross profit
75,915
Selling expenses (4,294) Financial revenue
2,630
General and administrative expenses (997) Financial expenses
(18,558)
Research and development expenses (131) Interest expense
(15,377)
Other (expense) income (204) Financial income
(15,928)
Operating income 1,705 Selling expense

Nonrecurring items (105) Administration expense

(22,942)
Interest expense, net (73) Operating income
37,045
Income before provision for income taxes and minority interests 1,527 Other revenue
 
Provision for income taxes (457) Other expense

Income before minority interests (1,070) Other income

Minority interests (189) Profit/loss in affiliates and joint venture

Share in net income of affiliates (564) Profit before tax

37,045
Net income 317 Corporate tax

Profit after tax 37,045

Minority interest

Net profit available to parent company’s 37,045

shareholders.
 Principles of revenue recognition
• Under the accrual method of accounting, revenue
is recognized when earned and expenses are
recognized when incurred.
• The important point to remember is that accrual
accounting does not necessarily coincide with the
receipt or payment of cash.
• Consequently, firms can manipulate net income by
recognizing revenue earlier or later, or by delaying
or accelerating the recognition of expense.
 Principle of revenue recognition
VAS, IASB The U.S securities and
Exchange Commission (SEC)

•Seller has transferred most of risks and •There is evidence of an

benefits associated with ownership of goods arrangement between the buyer
to buyer Điều kiện ghi nhận doanh thu (VAS) and seller
•Seller has no longer had management right •The product has been
of good management as owner or control delivered or the service has
right of goods. been rendered
•Revenue is recognized reliably •The price is determined or
•Seller has earned or will earn future determinable
economic benefits •The seller is reasonably sure
•Related expenses can be measured of collecting money
•Completed work can be measured on the
date of establishing the balance sheet (for
service)
 Revenue Recognition Applications
1. Long term contract
Condition Methods

Cost and revenue Percentage of completion method.

can be reliably Revenue, expense and profit are recognized as the work is
estimated performed. The percentage of completion is measured by the
total cost incurred to date divided by the total expected cost of
the project.

Cost and revenue GAAP: Completed contract method (GAAP)

can not be reliably Revenue, expense and profit are recognized only when the
measured or the contract is complete. If a loss is expected, the loss must be
project is short-term recognized immediately.
IFRS: Revenue is recognized to the extent of contract costs, cost
are expensed when incurred and profit is recognized only at
completion.
 Example 1
Assume that AAA Construction Corp. has a contract to
build a ship for $1,000 and a reliable estimate of the
contract’s total cost is $800. Project costs incurred by AAA
are as follows:
Year 2005 2006 2007 Total
Cost incurred 400 300 100 800
(USD)

Determine AAA’s net income from this project for each year
using the percentage of completion and completed contract
methods in accordance with US GAAP.
 Example 2
Using the data from the previous example,
determine AAA’s net income from this project
each year in accordance with IFRS.
 Revenue Recognition Application
2. Installment sales: A firm finances a sales and payments are
expected to be received over an extended period
• If collectability is certain, revenue is recognized at the time of
sale using the normal revenue recognition criteria.
• If collectability cannot be reasonably estimated, the
installment method is used.

• If collectability is highly uncertain, the cost recovery

method is used.
Revenue Recognition Application
Installment method: profit is recognized as
cash is collected. Profit is equal to the cash
collected during the period multiplied by the
total expected profit as a percentage of sales.
Cost recovery method: Profit is recognized
only when cash collected exceeds costs
incurred.
 Example 3
BBB Property Cor. Sells a piece of land for $1,200. The
original cost of land was $600. Collections received by BBB
for sale are as follow:

Year 2005 2006 2007 Total

Collection 600 500 100 1200

Determine BBB’s profit under the installment and cost recovery

methods.
 Principles of Expense Recognition
• Expenses are subtracted from revenue to calculate net
income.
• Expenses are decreases in economic benefits during the
accounting period in the form of outflows or depletions of
assets or incurrences of liabilities that result in decreases
in equity other than those relating to distributions to
equity participants.
• General principle of expense recognition is “matching
principle”. A company directly matches some expenses
with associated revenue.
 Depreciation methods

• Straight-line method
• Accelerated method
• Units-of-production methods
 Depreciation methods
• Straight-line method recognizes an equal amount of
depreciation expense each period

𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙𝑐𝑜𝑠𝑡 − 𝑠𝑎𝑙𝑣𝑎𝑔𝑒 𝑣𝑎𝑙𝑢𝑒

𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑒𝑥𝑝𝑒𝑛𝑠𝑒=
𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑙𝑖𝑓𝑒
 Depreciation methods
• Accelerated depreciation speed up the recognition of depreciation
expense in a systematic way to recognize more depreciation expense
in the early years of the asset’s life and less depreciation expense in
the later years of its life.
Declining balance method applies a constant rate of depreciation
of an asset’s book value each year.
Double declining balance method applies two times the straight
line rate to the declining balance.

𝐷𝐷𝑃 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑒𝑥𝑝𝑒𝑛𝑠𝑒= ( 2
𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑙𝑖𝑓𝑒 )
( 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙𝑐𝑜𝑠𝑡−𝑎𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 )
 Depreciation methods
• Units-of-production method is based on usage rather than time.

𝑢𝑛𝑖𝑡𝑠−𝑜𝑓 −𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛=(𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙𝑐𝑜𝑠𝑡−𝑠𝑎𝑙𝑣𝑎𝑔𝑒𝑣𝑎𝑙𝑢𝑒
𝑙𝑖𝑓𝑒𝑖𝑛𝑜𝑢𝑡𝑝𝑢𝑡𝑢𝑛𝑖𝑡𝑠 )
× 𝑜𝑢𝑡𝑝𝑢𝑡𝑢𝑛𝑖𝑡𝑠𝑖𝑛 𝑡h𝑒𝑝𝑒𝑟𝑖𝑜𝑑
 Example 1
A company purchased a machine at cost of 550,000$ with
useful life of 5 years and salvage (residual) value of 50,000$.
Calculate depreciation expense according to A, straight line
method ; B, double declining method in the first two years
and straight line method in the remaining years.
 Example 2
• Sackett Laboratories purchases chemical processing machinery
for $550,000. The equipment has an estimated useful life of five
years and an estimated salvage value of $50,000. The company
expects to produce 20,000 units of output using this machinery,
with 6,000 units in each of the first two years, 3,000 units in the
next two years, and 2,000 units in the fifth year. The company’s
effective tax rate is 30%. Revenue are $600,000 per year, and
expenses other than depreciation are $300,000 in each year.
Calculate Sackett’s net income and net profit margin if the
company depreciates the machinery using (a) the straight-line
method, (b) the DDB method, changing to the straight-line
method after 2 years, and (c) the units of production method.
 Age of assets
• Average age (in years) =accumulated depreciation/ annual
depreciation expense
• Average depreciable life =ending gross investment/ annual
depreciation expense
• Remaining useful life=(ending gross investment-accumulated
depreciation)/annual depreciation expense
 Example 3
At the end of 2008, a company reported fixed assets’ gross
investment of 3 million USD, accumulated depreciation of 2.5
million USD, annual depreciation expense of 500,000 USD.
Calculate average age of assets, average depreciable life and
remaining useful life? What should you comment ?
 Example 4
• CCC purchases inventory items for resale. During 2006, CCC had
the following transactions:
Quarter Inventory Purchases
First quarter 2,000 units at $40 per unit
Second quarter 1,500 units at $41 per unit
Third quarter 2,200 units at $43 per unit
Fourth quarter 1,900 units at $45 per unit
Total 7,600 units at a total cost of $321,600
• Inventory sales during the year were 5,600 units at 50$ per unit.
CCC determines that there were 2,000 remaining units of inventory
and specifically identifies that 1,900 were purchased in the fourth
quarter and 100 were purchased in the third quarter. What are the
revenue and expense associated with these transactions during 2006.
 Solution
Cost of good sold
From the first quarter 2,000 x 40 = 80,000
From the second quarter 1,500 x 41= 61,500
From the third quarter 2,100 x 43= 90,300
Total cost of good sold 231,800
Cost of goods remaining in inventory
From the third quarter 100 x 43= 4,300
From the fourth quarter 1,900 x 45= 85,500
Total ending inventory 89,800

• Cost of goods sold would be expensed against the revenue of

280,000$ so the gross profit in 2006= 280,000-231,800=48,200
• The remaining inventory amount of 89,800 will be matched against
revenue in a future year when the inventory are sold.
 Non-recurring items
• A discontinued operation is one that management has
decided to dispose of, but either has not yet done so, or has
disposed of in the current year after the operation had generated
income or losses.
Income/loss from discontinued operations is reported
separately in the income statement, net of tax, after income
from continuing operations
Analytical implications: Discontinued operations do not
affect net income from continuing operations. However,
they may provide information about the future cash flows
of the firm.
 Non-recurring items
• Unusual or infrequent items: the events are either
unusual in nature or infrequent in occurrence but not both.
Examples:
 Gains or losses from the sale of assets or part of a business
 Impairments, write-offs, write downs and restructuring costs
Unusual or infrequent items are included in income from
continuing operations are reported before tax.
Analytical implications: Even though unusual or infrequent
items affect net income from continuing operations, an analyst
may want to review them to determine whether they truly
should be included when forecasting future firm earnings.
 Non-recurring items

• Extraordinary items are events or transactions that is both

unusual and infrequent in occurrence.
Examples: gains/losses from early retirement of debt, uninsured losses
from natural disasters…(GAAP)
 GAAP: Extraordinary items are reported separately in the income
statement, net of tax, after income from continuing operations.
 IFRS, VAS do not allow extraordinary items to be separated from
operating results in the income statement.
Analytical implications: Judgment is required in determining whether a
transaction or event is extraordinary. Although extraordinary items do not
affect income from continuing operations, an analyst may want to review
them to determine whether some portion should be included when
forecasting future income.
 Other comprehensive income
• Other comprehensive income includes
transaction that are not included in net income,
such as:
1. Foreign currency translation gains and losses
2. Adjustments for minimum pension liability
3. Unrealized gains and losses from cash flow
hedging derivatives.
4. Unrealized gains and losses from available-for-
sale securities
 Earnings per share
1. Basic EPS

Weighted average number of common shares is the number of shares

outstanding during the year, weighted by the portion of the year they
were outstanding.
 Example 5
• Johnson Company has net income of $10,000
and paid $1,000 cash dividends to its preferred
shareholders and 1,750 cash dividends to its
common shareholders. At the beginning of the
year, there were 10,000 shares of common
stock outstanding. 2,000 new shares were
issued on July 1. Assuming a simple capital
structure, what is Johnson's basic EPS?
 Earnings Per Share
Effect of stock dividend and stock split:
• A stock dividend is the distribution of additional shares
to each shareholder in an amount proportional to their
current number of shares.
• A stock split refers to the division of each “old” share
into a specific number of “new” (post-split) shares.
• Each shareholder’s proportional ownership in the
company is unchanged by either of these events. Each
shareholder has more shares but the same percentage of
the total share outstanding.
 Example 6

During the past year, R&J Inc. had net income of $100,000, paid
dividends of $50,000 to its preferred stockholders, and paid
$30,000 in dividends to its common shareholders. R&J’s
common stock account showed the following
Time Event Number
01/01 Shares issued and outstanding at the 10,000
beginning of the year
01/04 Shares issued 4,000
01/07 10% stock dividend
01/09 Shares repurchased for the treasury 3,000

Compute weighted average number of common shares

outstanding during the year, and compute EPS.
 Earnings Per Shares
2. Diluted EPS
• Dilutive securities are stock options, warrants, convertible
debt, or convertible preferred stock that would decrease
EPS if exercised or converted to common stock.
• Antidilutive securities are stock options, warrants,
convertible debts, or convertible preferred stock that
would increase EPS if exercised or converted to common
stock.
Earnings Per Share
 Earnings per share
EPS with options and warrants if options and warrants are
dilutive  use treasury stock method
- Treasury stock method assumes that the hypothetical funds
received by the company from the exercise the options
would be used to purchase shares of the company’s
common stock in the market at the average market price
- The net increase in the number of shares outstanding is the
number of shares created by exercising the option less the
number of shares hypothetically repurchased with the
proceeds of exercise
 Example 7
Last year, Hipotech company reported net income of
2,3 million USD and average number of share
outstanding of 800,000 shares. The company had
30,000 options with exercise price of 35$ and no other
dilutive securities. During the year, the average market
price of the company’s stock was $55. Calculate basic
EPS and dilutive EPS of Hipotech.
 Example 8
On 31/12/2006, Bright-Warm Utility reported net income of
1,750,000$. The company had average number of outstanding
shares of 500,000 and 20,000 of convertible preferred shares.
Each preferred shares paid 10 USD dividend and was
convertible into 5 common shares. Calculate basic and
dilutive EPS of the company.
 Example 9
Oppnox company reported net income of 750,000 USD in
2005. The company’ average number of outstanding shares
was 690,000. The company had 50,000 convertible bonds,
coupon rate of 6%, convertible into 10,000 common shares.
Tax rate was 30%. Calculate EPS and dilutive EPS of
Oppnox.
 Why is forecasting important?
• Mistakes are costly:
 If you produce too much of a product, or a product that no one wants
to buy, you still must pay for materials, labor, and storage.
 If you produce too little of a product, you will lose sales and possibly
market share.
 Forecasting Approaches
• Experience
• Profitability
• Correlation

 Financial managers concentrate on three general

approaches to financial forecasting
 Experience
• Managers who have been in the business for a long
time have developed a sense for the patterns in
sales, expenses, consumer demand factors, etc.
• Example: Editors who work for book publishers
regularly read submitted manuscripts and make
judgments about whether their company should
buy the rights to publish the books.
 Probability

• Past history often tells us a lot about what will happen in the future.
• Managers can use this information to estimate the future.
• Example: In the past, a 711 manager has found that she will lose 1% of
candy inventory to shoplifters. She can use this information to estimate
future losses and also to design better controls
 Correlation

• Correlation is a measure of the relative movement of two variables

relative to each other.
• Example: If interest rates go up, a real estate agent knows that home
sales will tend to fall (because the higher cost of financing makes it
harder for buyers to qualify for mortgages).
• Example: Sales of umbrellas are higher in rainy seasons
 Pro Forma Financial Statements
• Pro forma financial statements are forecasts of the
firm’s future financial statements based on a certain
set of assumptions about sales trends and the
relationships between sales and various financial
variables, and between other financial statement
variables relative to each other.
 Producing Pro Forma
• Example Data for Marginal Product Inc.
  Sales will increase from $5 million to $8 million.
  Production is at full capacity (24 hrs. per day).
 Dividend payout will be 70% of NI.
 Spontaneous balance sheet accounts increase in a constant proportion to
sales.
 Producing Pro Forma
• Step 1:
– Determining Sales Growth: ($8-$5)/$5 =60%
Income Statement
Marginal Product Inc.
  Current Projected Note: The projected sales will be
Sales 5,000 8,000 determined after input from many different
COGS 4,133
units or departments of the firm.
EBIT 867
Int 200
EBT 667
Tax (.40) 266.8
NI 400.2
 Producing Pro Forma
• Step 2:
– Calculate projected Net Income.
New COGS = Old COGS x 1.6 = 6,613

Income Statement
Marginal Product Inc. Note: There is no increase yet in the interest charges
  Current Projected
since Marginal Product’s managers have not yet
Sales 5,000 8,000
decided how they will finance the growth.
COGS 4,133 6,613
EBIT 867 1,387
Int 200 200
EBT 667 1,187
Tax (.40) 266.8 474.8
NI 400.2 712
 Producing Pro Forma
• Step 3: Forecast increase in assets (% of sales).

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 Account Payable 1.0 
Net Fixed Assets 3.0 Accrued Expenses 0.5 
Total 5.5 Notes Payable 0.0 
  Current Liabilities 1.5 
  Long-term Debt 2.0 
  Common Stock 0.5 
  Retained Earnings 1.5 
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 3: Forecast increase in assets (% of sales). If sales increase by 60%, so
too will any asset that remains a constant percent of sales.

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Account Payable 1.0 
Net Fixed Assets 3.0 Accrued$2.5(1+0.60)
Expenses = $4.0 0.5 
Total 5.5 Notes Payable 0.0 
  Current Liabilities 1.5 
  Long-term Debt 2.0 
  Common Stock 0.5 
  Retained Earnings 1.5 
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 3: Forecast increase in assets (% of sales).

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Account Payable 1.0 
Net Fixed Assets 3.0 4.8Accrued Expenses 0.5 
Total 5.5 8.8Notes$3.0(1+0.60)
Payable = $4.8 0.0 
  Current Liabilities 1.5 
  +$3.3 Long-term Debt 2.0 
  Common Stock 0.5 
  Retained Earnings 1.5 
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 4: Forecast increase in spontaneous liabilities

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Accounts Payable 1.0  1.6
Net Fixed Assets 3.0 4.8Accrued$1.0(1+0.60)
Expenses = $1.6 0.5 
Total 5.5 8.8Notes Payable 0.0 
  Current Liabilities 1.5 
  Long-term Debt 2.0 
  Common Stock 0.5 
  Retained Earnings 1.5 
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 4: Forecast increase in spontaneous liabilities

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Accounts Payable 1.0  1.6
Net Fixed Assets 3.0 4.8Accrued Expenses 0.5  0.8
Total 5.5 8.8Notes Payable 0.0 
$0.5(1+0.60) = $0.8
  Current Liabilities 1.5 
  Long-term Debt 2.0 
  Common Stock 0.5 
  Retained Earnings 1.5 
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 5: Forecast increase in retained earnings.

Balance Sheet (figures in 000,000s)

Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Accounts Payable 1.0  1.6
Net Fixed Assets 3.0 4.8Accrued Expenses 0.5  0.8
New Retained Earnings
Total 5.5 8.8Notes Payable 0.0 
= Old Retained Earnings
  + Additions Current Liabilities
to Retained Earnings 1.5 
  = $1.5 + [NILong-term Debt payout)]
✖️(1 – dividend 2.0 
  = $1.5 + [0.712 ✖️(1 –Stock
Common 0.7)] 0.5 
  = $1.7 Retained Earnings 1.5  1.7
  Common Equity 2.0 
      Total 5.5 
 Producing Pro Forma
• Step 6: Hold other accounts constant to see how much additional funds
will be needed.
• . Balance Sheet (figures in 000,000s)
Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Accounts Payable 1.0  1.6
Net Fixed Assets 3.0 4.8Accrued Expenses 0.5  0.8
Total 5.5 8.8Notes Payable 0.0  0.0
  Current Liabilities 1.5 2.4
  Long-term Debt 2.0  2.0
  Common Stock 0.5  0.5
  Retained Earnings 1.5  1.7
  Common Equity 2.0  2.2
      Total 5.5  6.6
 Producing Pro Forma
• Step 7: Additional funds needed (AFN) = projected assets minus projected
claims.
• .
Balance Sheet (figures in 000,000s)
Marginal Product Inc.
Assets Current Projected Liabilities Current Projected
Current Assets 2.5 4.0Accounts Payable 1.0  1.6
Net Fixed Assets 3.0 4.8Accrued Expenses 0.5  0.8
Total 5.5 8.8Notes Payables 0.0  0.0
  Current Liabilities 1.5 2.4
AFN = $8.8 – 6.6 = $2.2m
  Long-term Debt 2.0  2.0
  Common Stock 0.5  0.5
  Raise $2.2m using notes payable, Retained Earnings 1.5  1.7
  and/or long-term debt, and/or Common Equity 2.0  2.2
common stock
      Total 5.5  6.6
 Producing Pro Forma - Summary

1. Determine sales growth.

2. Calculate projected net income.

3. Project assets needed to support the new sales level.

4. Project increases in spontaneous asset and liability accounts.

5. Project addition to retained earnings.

6. Determine the difference between projected assets and projected

liabilities & equity.
Quiz
After completing the pro forma income statement, Mr. Tine now realizes he should also
complete a pro forma balance sheet. Net sales in 2012 were $90,000 and his forecasted
sales for 2013 are $110,000. All of Sugar Cane Alley’s current assets will remain the
same percentage of sales as they were in 2012. Mr. Tine does not plan to buy or sell any
equipment, so his gross property and equipment amount will remain the same as 2012.
In the liabilities and equity section, only accounts payable will remain the same
percentage of sales as in 2012. Except for retained earnings, the other accounts are
expected to remain the same value as 2012. The following balances were taken from
Sugar Cane Alley’s end-of-2012 balance sheet:
a. Calculate the forecasted end-of-2013 values for each of the current asset accounts.
b. Depreciation expense for 2013 is estimated to be $2,000. Calculate the estimated
total assets for the end of 2013.
c. Forecast the accounts payable for the end of 2013.
d. What will total liabilities be at the end of 2013?
e. Assuming the forecasted net income for 2013 is $19,351 and cash dividends paid
equal $10,000, what total will be forecasted for the end- of-2013 total liabilities and
equity?
f. Based on these calculations of the pro forma balance sheet, are additional funds
needed?
g. Net income for 2012 was $14,840. What was Sugar Cane Alley’s net profit margin for
2012? The forecasted net income for 2013 is $19,351. What is Sugar Cane Alley’s
forecasted 2013 net profit margin?