Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales $49,000Costs 40,300 Taxable income 8,700Taxes (22%) 1,914 Net income 6,786 Dividends $2,400Addition to retained earnings 4,386 The projected sales growth rate is 18 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all answers as positive values. Do not round intermediate calculations.)

Since the answer requires construction of a proforma income statement, please refer to the explanation section for the answer

Explanation:

The proforma invoice has been provided below. Sales have been increased by 18%. The question states that costs vary with sales therefore, the costs are kept at the same percentage of sales in the proforma. Costs as a percentage of sales in the question come out to 82%. Taxable income is Sales less Costs. Taxes are 22% of taxable income. Dividend payout ration is calculated by dividends paid divided by total income available to shareholders. Total income available to shareholders includes Net Income PLUS non cash charges (depreciation) MINUS Non Cash Sales. With the information given in the question, it is assumed that non cash charges and non cash sales are zero so the only income available to shareholders is the net income. Dividend payout in the question comes out to 35%.

Sales 57,820.00  

Costs   47,554.00                    

Taxable Income   10,266.00  

Taxes   2,258.52  

Net Income   8,007.48  

Dividend = Dividend payout ratio x Net Income: 0.35 x 8,007.48

So, Dividends =  2,832.00  

Addition in Retained earnings = Net Income - Dividend = 8,007.48 - 2,832

So, Addition in Retained earnings =  5,175.48  

answer; the above statement/question is ( true);