Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.

Red Queen Restaurants Income Statement for the Year Ended December 31, 2019 Sales revenue $799,000 Less: Cost of goods sold 599,000 Gross profits $200,000 Less: Operating expenses 101,000 Net profits before taxes $99,000 Less: Taxes (21%) 20,790 Net profits after taxes $78,210 Less: Cash dividends 20,500 To retained earnings $57,710

Red Queen Restaurants Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Cash $32,700 Accounts payable $99,900 Marketable securities 17,800 Taxes payable 20,600 Accounts receivable 149,800 Other current liabilities 4,500 Inventories 100,400 Total current liabilities $125,000 Total current assets $300,700 Long-term debt $199,700 Net fixed assets 349,500 Common stock $150,500 Retained earnings $175,000 Total assets $650,200 Total liabilities and equity $650,200

The following financial data are also available:

(1) The firm has estimated that its sales for 2020 will be $899,700.

(2) The firm expects to pay $34,400 in cash dividends in 2020.

(3) The firm wishes to maintain a minimum cash balance of $31,500.

(4) Accounts receivable represent approximately 21% of annual sales.

(5) The firm's ending inventory will change directly with changes in sales 2020.

(6) A new machine costing $43,100will be purchased in 2020.Total depreciation for 2020 will be $15,800.

(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.

Questions:

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

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

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