Table 4.4 Use the Percent-Of-Sales Method to Prepare a Pro Forma Income

question 130

Multiple Choice

Table 4.4
Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31,2019,for Hennesaw Lumber,Inc.
Hennesaw Lumber,Inc.estimates that its sales in 2019 will be $4,500,000.Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2019.Hennesaw Lumber,Inc.'s income statement for the year ended December 31,2018 is shown below.From your preparation of the pro forma income statement,answer the following multiple choice questions.
-The pro forma operating expenses for 2019 are ________.(See Table 4.4)

• A)$150,000
• B)$200,000
• C)$210,000
• D)$225,000

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Definitions:

Depreciation

Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life, representing how much of the asset's value has been used up.

Interest Rate

The cost of borrowing money, typically expressed as an annual percentage of the principal loan amount.

Marginal Efficiency

The expected profitability of investing in additional units of capital, influencing a firm's decision to invest based on future returns.

Net Investment

The total spending on new capital minus the depreciation on existing capital, indicating the growth of a company's or nation's capital stock.