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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

$ 900 comma 700$900,700.

(2) The firm expects to pay

$ 35 comma 700$35,700

in cash dividends in 2016.

(3) The firm wishes to maintain a minimum cash balance of

$ 30 comma 500$30,500.

(4) Accounts receivable represent approximately

21 %21%

of annual sales.

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

(6) A new machine costing

$ 42 comma 300$42,300

will be purchased in 2016. Total depreciation for 2016 will be

$ 15 comma 100$15,100.

(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	$ 799 comma 200$799,200
Less: Cost of goods sold	600 comma 700600,700
Gross profits	$ 198 comma 500$198,500
Less: Operating expenses	100 comma 500100,500
Net profits before taxes	$ 98 comma 000$98,000
Less: Taxes (rate equals 40 %rate=40%)	39 comma 20039,200
Net profits after taxes	$ 58 comma 800$58,800
Less: Cash dividends	19 comma 30019,300
To retained earnings	$ 39 comma 500$39,500

Red Queen Restaurants Balance Sheet December 31, 2015
Assets			Liabilities and Stockholders' Equity
Cash	$ 31 comma 600$31,600		Accounts payable	$ 99 comma 800$99,800
Marketable securities	17 comma 10017,100		Taxes payable	19 comma 90019,900
Accounts receivable	150 comma 800150,800		Other current liabilities	5 comma 9005,900
Inventories	100 comma 800100,800		Total current liabilities	$ 125 comma 600$125,600
Total current assets	$ 300 comma 300$300,300		Long-term debt	$ 200 comma 100$200,100
Net fixed assets	350 comma 800350,800		Common stock	$ 150 comma 400$150,400
			Retained earnings	$ 175 comma 000$175,000
Total assets	$ 651 comma 100$651,100		Total liabilities and equity	$ 651 comma 100$651,100