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

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

Income Statement				Balance Sheet
Sales	$	30,100		Assets	$	21,050		Debt	$	6,550
Costs		24,380						Equity		14,500
Net income	$	5,720		Total	$	21,050		Total	$	21,050

The company has predicted a sales increase of 14 percent. It has predicted that every item on the balance sheet will increase by 14 percent as well.

  

Create the pro forma statements and reconcile them.

Pro forma income statement			Pro forma balance sheet
Sales	$		Assets	$		Debt	$
Costs						Equity
Net income	$		Total	$		Total	$

What is the plug variable?

The plug variable is dividends paid in the amount of $ .

Explanation:

In order for the balance sheet to balance, equity must be:

Equity	=	Total liabilities and equity – Debt
Equity	=	$23,997 – 7,467
Equity	=	$16,530

Equity increased by:

Equity increase	=	$16,530 – 14,500
Equity increase	=	$2,030

Net income is $6,521 but equity only increased by $2,030; therefore, a dividend of:

Dividend	=	$6,521 – 2,030
Dividend	=	$4,491

must have been paid. Dividends paid is the plug variable.