Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.
The following financial data are also available:
(1) The firm has estimated that its sales for 2013 will be $900,000.
(2) The firm expects to pay $35,000 in cash dividends in 2013.
(3) The firm wishes to maintain a minimum cash balance of $30,000.
(4) Accounts receivable represent approximately 18% of annual sales.
(5) The firm€™s ending inventory will change directly with changes in sales in 2013.
(6) A new machine costing $42,000 will be purchased in 2013. Total depreciation for 2013 will be $17,000.
(7) Accounts payable will change directly in response to changes in sales in 2013.
(8) Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
(9) Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
a. Prepare a pro forma income statement for the year ended December 31, 2013, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2013, using the judgmental approach.
c. Analyze these statements, and discuss the resulting external financingrequired.

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Red Queen Restaurants Income Statement for the Year Ended December 31, 2012 Sales revenue $800,000 Less: Cost of goods sold 600,000 $200,000 100,000 $100,000 ) 40,000 $ 60,000 20,000 S 40.000 Gross profits Less: Operating expenses Less: Taxes (rate 40% Less: Cash dividends Net profits before taxes Net profits after taxes To retained earnings Red Queen Restaurants Balance Sheet December 31, 2012 Liabilities and Stockholders' Equity Assets Cash Marketable securities Accounts receivable $100,000 20,000 5,000 $125,000 200,000 $325,000 150,000 175,000 Accounts payable Taxes payable Other current liabilities S 32,000 18,000 150,000 100,000 $300,000 350,000 Total current liabilities Total current assets Long-term debt Net fixed assets Total liabilities Common stock Retained earnings Total assets Total liabilities and stockholders' equity $650,000