Leonard Industries wishes to prepare a pro forma balance sheet for December 31, 2020. The firm expects 2020 sales to total $3,000,000. The following information has been gathered:
(1) A minimum cash balance of $50,000 is desired.
(2) Marketable securities are expected to remain unchanged.
(3) Accounts receivable represent 10% of sales.
(4) Inventories represent 12% of sales.
(5) A new machine costing $90,000 will be acquired during 2020. Total depreciation
for the year will be $32,000.
(6) Accounts payable represent 14% of sales.
(7) Accruals, other current liabilities, long-term debt, and common stock are expected to remain unchanged.
(8) The firm’s net profit margin is 4%, and it expects to pay out $70,000 in cash dividends during 2020.
(9) The December 31, 2019, balance sheet follows.

a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2020, for Leonard Industries.
b. How much, if any, additional financing will Leonard Industries require in 2020? Discuss.
c. Could Leonard Industries adjust its planned 2020 dividend to avoid the situation described in part b? Explain how.

Transcribed Image Text:

Leonard Industries Balance Sheet December 31, 2019 Liabilities and stockholders' equity Assets $ 395,000 Accounts payable Cash 45,000 Accruals Marketable securities 15,000 60,000 Accounts receivable Other current liabilities 255,000 30,000 $ 485,000 Total current liabilities Inventories 340,000 $ 655,000 Total current assets Long-term debt 350,000 $ 835,000 Net fixed assets Total liabilities 600,000 Total assets $1,255,000 Common stock 200,000 Retained earnings 220,000 Total liabilities and stockholders’ equity $1,255,000