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Clearwater"s 2006 income statement appears below ($ in thousands): Clearwater Development Co. Income Statement Sales $125,000 Less: Cost of goods...
Clearwater"s 2006 income statement appears below ($ in thousands): Clearwater Development Co. Income Statement Sales $125,000 Less: Cost of goods sold 80,000 Gross profit $ 45,000 Less: Operating expenses 30,000 Less: Interest 10,000 Pretax profit $ 5,000 Less: Taxes (35%) 1,750 Net income $ 3,250 a. Use the percentage-of-sales method to construct a pro forma income statement for 2007. b. You learn that 25 percent of the cost of goods sold and operating expense figures for 2006 are fixed costs that will not change in 2007. Reconstruct the pro forma income statement. C. Compare and contrast the statement prepared in parts (a) and (b). Which statement will likely provide the better estimate of 2007 income?
