-20 Integrative: Pro forma statements Red Queen Restaurants wishes to prepare finan- cial 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 2020 will be $900,000.- (2) The firm expects to pay $35,000 in cash dividends in 2020.- (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 2020. (6) A new machine costing $42,000 will be purchased in 2020. Total depreciation for 2020 will be $17,000. (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 judgmen- tal approach. c. Analyze these statements, and discuss the resulting external financing required. Financial Tools Red Queen Restaurants Income Statement for the Year Ended December 31, 2019 Sales revenue $800,000 Less: Cost of goods sold 600,000 Gross profits $200,000 Less: Operating expenses 100,000 Net profits before taxes $100,000 Less: Taxes (rate=21%) 21,000 Net profits after taxes $ 79,000 Less: Cash dividends 20,000 To retained earnings $ 59,000 Red Queen Restaurants Balance Sheet December 31, 2019 Assets 18,000 Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Liabilities and stockholders' equity $ 32,000 Accounts payable $100,000 Taxes payable 20,000 150,000 Other current liabilities 5,000 100,000 Total current liabilities $125,000 $300,000 Long-term debt 200,000 350,000 Total liabilities $325,000 $650,000 Common stock 150,000 Retained earnings 175,000 Total liabilities and stockholders' equity $650,000 -20 Integrative: Pro forma statements Red Queen Restaurants wishes to prepare finan- cial 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 2020 will be $900,000.- (2) The firm expects to pay $35,000 in cash dividends in 2020.- (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 2020. (6) A new machine costing $42,000 will be purchased in 2020. Total depreciation for 2020 will be $17,000. (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 judgmen- tal approach. c. Analyze these statements, and discuss the resulting external financing required. Financial Tools Red Queen Restaurants Income Statement for the Year Ended December 31, 2019 Sales revenue $800,000 Less: Cost of goods sold 600,000 Gross profits $200,000 Less: Operating expenses 100,000 Net profits before taxes $100,000 Less: Taxes (rate=21%) 21,000 Net profits after taxes $ 79,000 Less: Cash dividends 20,000 To retained earnings $ 59,000 Red Queen Restaurants Balance Sheet December 31, 2019 Assets 18,000 Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Liabilities and stockholders' equity $ 32,000 Accounts payable $100,000 Taxes payable 20,000 150,000 Other current liabilities 5,000 100,000 Total current liabilities $125,000 $300,000 Long-term debt 200,000 350,000 Total liabilities $325,000 $650,000 Common stock 150,000 Retained earnings 175,000 Total liabilities and stockholders' equity $650,000