B D E F H L . N O F Problem 4-20 Integrative: Pro forma statements. Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided to prepare the financial plans. Red Queen Restaurant 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 Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Red Queen Restaurant Balance Sheet December 31, 2019 Liabilities and stockholders' equity $32,000 Accounts payable 18,000 Taxes payable 150,000 Other current liabilities 100,000 Total current liabilities $300,000 Long-term debt - 350.000 Total liabilities $650,000 Common stock Retained earnings Total liabilities and equity $100,000 20,000 5,000 $125.000 200.000 $325,000 150,000 175,000 $650,000 C D G L . N O F B Solution a. Prepare a pro forma income statement for the year ended December 31, 2020, using the fixed cost data given to improve the accuracy of the percent-of-sales method. Red Queen Restaurant Pro Forma Income Statement for the Year Ended December 31, 2020 Sales Less: Cost of goods sold Gross profits Less: Operating expenses Net profits before taxes Less: Taxes (rate -21%) Net profits after taxes Less: Cash dividends To retained earnings b. Prepare a pro forma balance sheet as of December 31, 2020, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. Red Queen Restaurant Pro Forma Balance Sheet as of December 31, 2020 Assets Liabilities and stockholders' equity Cash Accounts payable Marketable securities Taxes payable Accounts receivable Other current liabilities Inventories Total current liabilities Total current assets Long-term debt Net fixed assets Total liabilities Total assets Common stock Retained earnings External funds required B H L . N O F D IUICMRICU b. Prepare a pro forma balance sheet as of December 31, 2020, using the information given and the judgmental approach. Include a reconciliation of the retained earnings account. Red Queen Restaurant Pro Forma Balance Sheet as of December 31, 2020 Assets Liabilities and stockholders' equity Cash Accounts payable Marketable securities Taxes payable Accounts receivable Other current liabilities Inventories Total current liabilities Total current assets Long-term debt Net fixed assets Total liabilities Total assets Common stock Retained earnings External funds required Total liabilities and equity c. Analyze these statements, and discuss the resulting external financing required