The Longbranch Western Wear Company has the following financial statements, which are representative of the companys historical average.

Income Statement
Sales	$210,000
Expenses	156,500
Earnings before interest and taxes	$53,500
Interest	3,000
Earnings before taxes	$50,500
Taxes	19,000
Earnings after taxes	$31,500
Dividends	$6,300

Balance Sheet
Assets		Liabilities and Stockholders' Equity
Cash	$4,000	Accounts payable	$9,000
Accounts receivable	20,000	Accrued wages	2,200
Inventory	25,000	Accrued taxes	9,800
Current assets	$49,000	Current liabilities	$21,000
Capital assets	80,000	Notes payable	8,000
		Long-term debt	20,000
		Common stock	30,000
		Retained earnings	50,000
Total assets	$129,000	Total liabilities and stockholders' equity	$129,000

Longbranch is expecting a 25 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in sales is expected to be carried out without any expansion of capital assets; instead it will be done through more efficient asset utilization in the existing stores. Of liabilities, only current liabilities vary directly with sales. (Refer to the example in the chapter and show all calculations).

a.	Using a percent-of-sales method, determine whether Longbranch Western Wear has external financing needs.

The firm (Click to select)needshas $ in (Click to select)external fundssurplus funds.

b.	Prepare a pro forma balance sheet with any financing adjustment made to notes payable. (Input all answers as positive values. Be sure to list the assets and liabilities in order of their liquidity. Do not leave any empty spaces; input a 0 wherever it is required.)

Balance Sheet
Current assets		Liabilities
(Click to select)Capital AssetNotes payableInventoryAccounts receivableCash	$	(Click to select)Common stockAccured WagesAccured TaxesAccounts payableRetained earnings	$
(Click to select)Accounts receivablePrepaid expensesCapital AssetInventoryCash		(Click to select)Accured WagesCommon stockAccured TaxesAccounts payableLong-term debtRetained earnings
(Click to select)Accounts receivableCashPrepaid expensesGross plantInventory		(Click to select)Retained earningsLong-term debtCommon stockAccured TaxesAccured WagesAccounts payable
Current assets		Current liabilities	$
(Click to select)Capital AssetsCurrent assetsAccounts ReceivableCashInventory		(Click to select)Retained earningsNotes receivableLong term liabilitiesNotes payableAccounta payable
		(Click to select)Accounts payableCommon stockRetained earningsLong-term debtAccured WagesAccured Taxes
		(Click to select)Retained earningsLong-term debtAccounts payableAccured WagesCommon stockAccured Taxes	$
		(Click to select)Retained earningsLong-term debtAccured WagesCommon stockAccured TaxesAccounts payable
Total assets	$	Total liabilities and shareholders' equity	$

c.	Calculate the current ratio and total debt to assets ratio for each year. (Round the final answers to 2 decimal places.)

	Year 1	Year 2
Current ratio	X	X
Total debt/ assets	%	%