Pro forma income statement Bells Manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Bells Manufacturing is planning on paying cash dividends of $85,000 during 2016. Refer to the financial data for the year ended December 31, 2015, while answering the following:
a. Compile the pro forma income statement for the year ended December 31, 2016, using the percentage-of-sales method.
b. Compile the pro forma income statement for the year ended December 31, 2016, using the fixed and variable cost data.
c. As the financial manager, which of the two pro forma statements would you regard as more accurate? Explain.
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