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

Income Statement

Sales $ $200,000$

Expenses $158,000$

Earnings before interest and taxes $ $42,000$

Interest $2,000$

Earnings before taxes $ $40,000$

Taxes $20,000$

Earnings after taxes $ $20,000$

Dividends $ $10,000$

Balance Sheet

Assets Liabilities and Shareholders' Equity

Cash $$5,000$ Accounts payable $$5,000$

Accounts receivable $10,000$ Accrued wages $1,000$

Inventory $15,000$ Accrued taxes $2,000$

Current assets $$30,000$ Current liabilities $$8,000$

Capital assets $70,000$ Notes payable $7,000$

Long$-$term debt $15,000$

Common stock $20,000$

Retained earnings $50,000$

Total assets $$100,000$ Total liabilities and equity $$100,000$

Longbranch is expecting a $20$ percent increase in sales next year, and management is concerned about the company$$s 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.

a$.$ Using a percent$-$of$-$sales method, determine whether Longbranch Western Wear has external financing needs. $($Input the amount as a positive value.$)$

The firm

has

$

$4400$

in

surplus funds

$.$

b$.$ Prepare a pro forma balance sheet with any financing adjustment made to notes payable and excess, if any, shall reduce long term debt. $($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

Cash

$

$6000$

Accounts payable

$

$2400$

Accounts receivable

$14000$

Accrued wages

$1600$

Inventory

$19000$

Accrued taxes

$5000$

Current assets $

$9000$

Current liabilities $

$9000$

Capital assets

Notes payable

Long$-$term debt

$

Common stock

Retained earnings

Total assets $

Total liabilities and 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

$3\mathrm{.}75$

X

$3\mathrm{.}75$

X

Total debt$/$ assets

$30$

$\%$

$23$

$\%$