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forma statementsRed Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided here

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to prepare the financial plans. The following financial data are also available:

(1) The firm has estimated that its sales for 2016 will be

$930,000.

(2) The firm expects to pay $35,200 in cash dividends in 2016.

(3) The firm wishes to maintain a minimum cash balance of $30,800.

(4) Accounts receivable represent approximately 20% of annual sales.

(5) The firm's ending inventory will change directly with changes in sales in 2016.

(6) A new machine costing $43,200

will be purchased in 2016. Total depreciation for 2016 will be $16,500.

(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

Red Queen Restaurants Income Statement
for the Year Ended December 31, 2015
Sales revenue	$805,600
Less: Cost of goods sold	$600,200
Gross profits	$205,400
Less: Operating expenses	$99,800
Net profits before taxes	$105,600
Less: Taxes (rate equals 35 %)	$36,960
Net profits after taxes	$68,640
Less: Cash dividends	$19,800
To retained earnings	$48,840

Red Queen Restaurants Balance Sheet December 31, 2015
Assets			Liabilities and Stockholders' Equity
Cash	$32,600		Accounts payable	$99,900
Marketable securities	18,800		Taxes payable	20,200
Accounts receivable	151,000		Other current liabilities	4,500
Inventories	99,400		Total current liabilities	$124,600
Total current assets	$301,800		Long-term debt	$203,500
Net fixed assets	$352,000		Common stock	$150,400
			Retained earnings	$175,300
Total assets	$653,800		Total liabilities and equity	$653,800

My only question is on number number 50 The firm's ending inventory will change directly with the changes in sales.?