Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided here to prepare the financial plans. The following financial data are also available:

(1) The firm has estimated that its sales for 2016 will be $900,000.

(2) The firm expects to pay $35,700 in cash dividends in 2016.

(3) The firm wishes to maintain a minimum cash balance of $31,800.

(4) Accounts receivable represent approximately 18 % of annual sales.

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

(6) A new machine costing $42,800 will be purchased in 2016. Total depreciation for 2016 will be $16,600.

(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 Less: Cost of goods sold Gross profits Less: Operating expenses Net profits before taxes Less: Taxes (rate= 40%) Net profits after taxes Less: Cash dividends To retained earnings $800,300 600,500 $199,800 100,400 $99,400 39,760 $59,640 20,100 $39,540 Red Queen Restaurants Balance Sheet December 31, 2015 Assets Cash Marketable securities Accounts receivable Inventories Liabilities and Stockholders' Equity $100,700 19,500 5,500 $125,700 $200,700 $149,400 $175,000 $650,800 $31,900 Accounts payable 18,700 Taxes payable Other current liabilities 150,700 99,300 Total current liabilities Total current assets $300,600 Long-term debt 350,200 Common stock Net fixed assets Retained earnings Total liabilities and equity Total assets $650,800