Question

Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes):

Income Statement		Balance Sheet
Sales	$24,000	Assets	$10,100	Debt	$6,100
Costs	14,400			Equity	4,000
Net income	$9,600	Total	$10,100	Total	$10,100

The company has predicted a sales increase of 11 percent. It has predicted that every item on the balance sheet will increase by 11 percent as well.

Create the pro forma statements and reconcile them. What is the plug variable here?

Answer 1

Costs/Sales=14400/24000=60%

Next year sales=24000*(1+11%)=26640

Costs=60%*26640=15984

Net income=Sales-Costs=26640-15984=10656

==>Total assets=10100*(1+11%)=11211

==>Debt=6100*(1+11%)=6771

The plug variable is Equity which is equal to Total assetss-Debt=11211-6771=4440

Moreover you can also check with formula 4000*(1+11%)=4440

Income Statement		Balance sheet
Sales	26640		Assets	11211	Debt	6771
Costs	15984				Equity	4440
Net income	10656		Total	11211	Total	11211