Jose Tine owns Sugar Cane Alley, a small candy shop in Aspen, Colorado. He would like to expand his business and open a second store in Vail. Mr. Tine does not have the capital to undertake this project and would like to borrow the money from the local bank. He knows the banker will need projected income statement data for his current store when considering his loan application. Net sales for 2015 were $90,000. Considering previous growth rates in his business and the anticipated increase in tourism, projected net sales for 2016 are $110,000. Answer the questions based on the following assumptions. Cost of goods sold and selling and marketing expenses will remain the same percentage of sales as in 2015. General and administration expenses will remain the same value as 2015 at $5,000. Mr. Tine uses the straight-line method of depreciation, so last year’s depreciation expense figure of $2,000 can also be applied to 2016
a. 2015 cost of goods sold was $48,000. What is the forecasted value of cost of goods sold for 2016?
b. What is the forecasted gross profit for 2016?
c. Selling and marketing expenses for 2015 were $13,000. What is the forecasted value for 2016?
d. Calculate the forecasted operating income for 2016.
e. Assume the interest expense for 2016 will be $800 and the tax rate is 30 percent. Calculate earnings before taxes (EBT) and net income expected for 2016 to the nearest dollar.
f. If $10,000 is distributed in dividends in 2016, what will be 2016’s addition to retained earnings?