Answer:
The question involves calculating the pro forma financial statement for a firm using the percentage of sales approach with known changes in sales and retained earnings to determine the projected external financing needs.
Step-by-step explanation:
The question pertains to the pro forma financial statement preparation for a firm using the percentage of sales approach. This approach suggests that certain balance sheet accounts will vary directly with sales. The firm expects an increase in sales from $56,000 to $60,000, which is an increase of approximately 7.14%. As most balance sheet accounts are expected to change according to this percentage, aside from long-term debt and common stock, we need to calculate how this increase affects the accounts and what that implies for external financing needs, given the additional information that retained earnings are expected to increase by $3,100.
In the example for determining accounting profit, the firm has a sales revenue of $1 million. After accounting for the costs of labor ($600,000), capital ($150,000), and materials ($200,000), the firm's accounting profit can be calculated by subtracting the total costs from the sales revenue. Thus, the accounting profit is $1 million - ($600,000 + $150,000 + $200,000) = $50,000.