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 2016 will be $900,000.
(2) The firm expects to pay $35,000 in cash dividends in 2016.
(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 2016.
(6) A new machine costing $42,000 will be purchased in 2016. Total depreciation for 2016 will be $17,000.
(7) Accounts payable will change directly in response to changes in sales in 2016.
(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, 2016, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2016, using the judgmental approach.
c. Analyze these statements, and discuss the resulting external financing required.

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Assets Cash Marketable securities Accounts receivable Inventories Red Queen Restaurants Income Statement for the Year Ended December 31, 2015 Sales revenue Less: Cost of goods sold Gross profits Net fixed assets Total assets Less: Operating expenses Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends Total current assets Red Queen Restaurants Balance Sheet December 31, 2015 To retained earnings $800,000 600,000 $200,000 100,000 $100,000 40,000 $ 60,000 20,000 $ 40,000 $ 32,000 18,000 150,000 100,000 $300,000 350,000 $650,000 Liabilities and stockholders' equity Accounts payable Taxes payable Other current liabilities Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total liabilities and stockholders' equity $100,000 20,000 5,000 $125,000 200,000 $325,000 150,000 175,000 $650,000