Forecast an Income Statement Following is the income statement for Medtronic PLC. Consolidated Statement of Income ($ millions) For Fiscal Year Ended April 26, 2019 Net sales $30,557 Costs and expenses Cost of products sold 9,155 Research and development expense 2,330 Selling, general, and administrative expense 10,418 Amortization of intangible assets 1,764 Restructuring charges, net 198 Certain litigation charges, net 166 Other operating expense, net 258 Operating profit 6,268 Other nonoperating income, net (373) Interest expense 1,444
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Following is the income statement for Medtronic PLC.
| Consolidated Statement of Income ($ millions) For Fiscal Year Ended | April 26, 2019 |
|---|---|
| Net sales | $30,557 |
| Costs and expenses | |
| Cost of products sold | 9,155 |
| Research and development expense | 2,330 |
| Selling, general, and administrative expense | 10,418 |
| Amortization of intangible assets | 1,764 |
| Restructuring charges, net | 198 |
| Certain litigation charges, net | 166 |
| Other operating expense, net | 258 |
| Operating profit | 6,268 |
| Other nonoperating income, net | (373) |
| Interest expense | 1,444 |
| Income before income taxes | 5,197 |
| Income tax provision | 547 |
| Net income | 4,650 |
| Net income loss attributable to noncontrolling interests | (19) |
| Net income attributable to Medtronic | $4,631 |
Use the following assumptions to prepare a forecast of the company’s income statement for FY2020.
Note: Complete the entire question in Excel using the following template: Excel Template. Format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.
| Assumptions | ||
|---|---|---|
| Net sales increase | 8% | growth |
| Cost of products sold | 30.8% | of net sales |
| Research and development expense | 7.6% | of net sales |
| Selling, general, and administrative expense | 34.1% | of net sales |
| Amortization of intangible assets | 5.8% | of net sales |
| Restructuring charges, net | 75% | of 2019 restructuring expense |
| Certain litigation charges, net | $150 | million |
| Other operating expense, net | No change in $ amount | |
| Other nonoperating income, net | No change in $ amount | |
| Interest expense | No change in $ amount | |
| Income tax provision | 15% | of pretax income |
| Income attributable to noncontrolling interests | No change in $ amount |
| Consolidated Statement of Income ($ millions) For Fiscal Year Ended | 2020 | |
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