(1) The firm has estimated that its sales for 2020 will be $900,700. (2) The firm expects to pay $35,200 in cash dividends in 2020. (3) The firm wishes to maintain a minimum cash balance of $31,200. (4) Accounts receivable represent approximately 18% of annual sales. (5) The firm's ending inventory will change directly with changes in sales in 2020. (6) A new machine costing $43,800 will be purchased in 2020. Total depreciation for 2020 will be $16,300. (7) Accounts payable will change directly in response to changes in sales in 2020. (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, 2020, using the percent-of-sales method. b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach. c. Analyze these statements, and discuss the resulting external financing required. Red Queen Restaurants Income Statement O for the Year Ended December 31, 2019 Sales revenue $799,100 Less: Cost of goods sold 600,100 Gross profits $199,000 Less: Operating expenses 99, 100 Net profits before taxes $99,900 Less: Taxes (rate = 21%) 20,979 Net profits after taxes $78,921 Less: Cash dividends 20,300 To retained earnings $58,621 Red Queen Restaurants Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Cash $31,700 Accounts payable $100,600 Marketable securities 18,200 Taxes payable 20,800 Accounts receivable 149,800 Other current liabilities 4,100 Inventories 99,900 Total current liabilities $125,500 Total current assets $299,600 Long-term debt $199,400 Net fixed assets 350,300 Common stock $150,000 Retained earnings $175,000 Total assets $649,900 Total liabilities and equity $649,900 (1) The firm has estimated that its sales for 2020 will be $900,700. (2) The firm expects to pay $35,200 in cash dividends in 2020. (3) The firm wishes to maintain a minimum cash balance of $31,200. (4) Accounts receivable represent approximately 18% of annual sales. (5) The firm's ending inventory will change directly with changes in sales in 2020. (6) A new machine costing $43,800 will be purchased in 2020. Total depreciation for 2020 will be $16,300. (7) Accounts payable will change directly in response to changes in sales in 2020. (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, 2020, using the percent-of-sales method. b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach. c. Analyze these statements, and discuss the resulting external financing required. Red Queen Restaurants Income Statement O for the Year Ended December 31, 2019 Sales revenue $799,100 Less: Cost of goods sold 600,100 Gross profits $199,000 Less: Operating expenses 99, 100 Net profits before taxes $99,900 Less: Taxes (rate = 21%) 20,979 Net profits after taxes $78,921 Less: Cash dividends 20,300 To retained earnings $58,621 Red Queen Restaurants Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Cash $31,700 Accounts payable $100,600 Marketable securities 18,200 Taxes payable 20,800 Accounts receivable 149,800 Other current liabilities 4,100 Inventories 99,900 Total current liabilities $125,500 Total current assets $299,600 Long-term debt $199,400 Net fixed assets 350,300 Common stock $150,000 Retained earnings $175,000 Total assets $649,900 Total liabilities and equity $649,900
