P4–17 Pro forma balance sheet: Basic Leonard Industries wishes to prepare a pro forma balance sheet for December 31, 2016. The firm expects 2016 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 2016. 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 2016.

(9) The December 31, 2015, balance sheet follows.

a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2016, for Leonard Industries.

b. How much, if any, additional financing will Leonard Industries require in 2016?
Discuss.

c. Could Leonard Industries adjust its planned 2016 dividend to avoid the situation described in part b? Explain how.

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Assets Leonard Industries Balance Sheet December 31, 2015 Liabilities and stockholders' equity Cash $ 45,000 Accounts payable $ 395,000 Marketable securities 15,000 Accruals 60,000 Accounts receivable 255,000 Other current liabilities Inventories 340,000 Total current liabilities Total current assets $ 655,000 Long-term debt Net fixed assets 600,000 Total liabilities Total assets $1,255,000 Common stock Retained earnings Total liabilities and stockholders' equity 30,000 $ 485,000 350,000 $ 835,000 200,000 220,000 $1,255,000