The Long branch Western Wear Company has the following financial statements, which are representative of the company's historical average.

Income Statement
Sales ........... .............................................. $200,000
Expenses ......................................................158,000
Earn ings before interest and taxes ...... . .. . . 42,000
Interest ............................ . . .............................2,000
Earnings before taxes .....................................40,000
Taxes .................... .. .. ........ .. . .. . .................20,000
Earnings after taxes ... .. .. .. .. ........ . .. .. ... $ 20,000
Dividends ............ . . .. .. .. . ....... .. . .. . ........$ 10,000

Long branch is expecting a 20 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of capital assets; instead it will be done through more efficient asset utilization in the existing stores. Of liabilities, only current liabilities vary directly with sales. (Refer to the example in the chapter and show all calculations).
a. Using a percent-of-sales method, determine whether Longbranch Western Wear has external financing needs.
b. Prepare a pro forma balance sheet with any financing adjustment made to notes payable.
c. Calculate the current ratio and total debt to assets ratio for each year.

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Balance Sheet Liabilities and Shareholders' Equity Assets $ 5,000 Cash Accounts payable... 5,000 ... . Accrued wages. Accounts receivable. 10,000 1,000 Accrued taxes .. Current liabilities. Notes payable.. 15,000 Inventory..... 2,000 Current assets.. 30,000 8,000 Capital assets. . 7,000 70,000 15,000 Long-term debt Common stock 20,000 .... Retained earnings...... 50,000 $100,000 Total assets. . ... $100,000 Total liabilities and equity....