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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 300$35,300

in cash dividends in 2016.

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

$ 31 comma 700$31,700.

(4) Accounts receivable represent approximately

19 %19%

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 100$42,100

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

$ 16 comma 000$16,000.

(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	$ 800 comma 400$800,400
Less: Cost of goods sold	600 comma 100600,100
Gross profits	$ 200 comma 300$200,300
Less: Operating expenses	99 comma 10099,100
Net profits before taxes	$ 101 comma 200$101,200
Less: Taxes (rate equals 40 %rate=40%)	40 comma 48040,480
Net profits after taxes	$ 60 comma 720$60,720
Less: Cash dividends	19 comma 00019,000
To retained earnings	$ 41 comma 720$41,720

Red Queen Restaurants Balance Sheet December 31, 2015
Assets			Liabilities and Stockholders' Equity
Cash	$ 31 comma 900$31,900		Accounts payable	$ 100 comma 300$100,300
Marketable securities	18 comma 70018,700		Taxes payable	20 comma 90020,900
Accounts receivable	150 comma 300150,300		Other current liabilities	5 comma 4005,400
Inventories	100 comma 300100,300		Total current liabilities	$ 126 comma 600$126,600
Total current assets	$ 301 comma 200$301,200		Long-term debt	$ 199 comma 900$199,900
Net fixed assets	349 comma 600349,600		Common stock	$ 149 comma 300$149,300
			Retained earnings	$ 175 comma 000$175,000
Total assets	$ 650 comma 800$650,800		Total liabilities and equity	$ 650 comma 800$650,800