1. Integrative: Pro forma statements Red Queen Restaurants wishes to prepare financial 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 firms 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.

   1. Prepare a pro forma income statement for the year ended December 31, 2020, using the percent-of-sales method.

   2. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.

   3. Analyze these statements, and discuss the resulting external financing required.

      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 Liabilities and stockholders equity Cash $ 32,000 Accounts payable $100,000 Marketable securities 18,000 Taxes payable 20,000 Accounts receivable 150,000 Other current liabilities 5,000 Inventories 100,000 Total current liabilities $125,000 Total current assets $300,000 Long-term debt 200,000 Net fixed assets 350,000 Total liabilities $325,000 Total assets $650,000 Common stock 150,000 Retained earnings 175,000 Total liabilities and stockholders equity $650,000

2. LG 5