The Suzy Q Muffins Company has the following financial statements, which are
representative of the company's historical average.
Income Statement
Sales		$696,900
Expenses		550,551
Earnings before interest and taxes	146,349
Interest		6,969
Earnings before taxes	139,380
Taxes		69,690
Earnings after taxes	$69,690
Dividends		$34,845
		Balance Sheet
Assets			Liabilities and Shareholders' Equity
Cash	$17,423		Accounts payable	$17,423
Account receivable	34,845		Accrued wages	3,485
Inventory	52,268		Accrued taxes	6,969
Current assets	104,535		Current liabilities	27,876
Capital assets	243,915		Notes payable	24,392
			Long-term debt	52,268
			Shareholders' Equity
			Common shares	69,690
			Retained earnings	174,225
			Total liabilities
Total assets	$348,450		and shareholders' equity	$348,450

Suzy Q Muffins 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 liabiilities, only current liabilities vary directly with sales.

a. Using the percent-of-sales method, determine whether Suzy Q Muffins has external

financing needs.(9 marks)

% expected increase

20%

Profit margin

Payout ratio

Change in sales ($)

Spontaneous assets as % of sales

Spontaneous liabilities as % of sales

Does your company require funds? Explain based on your calculations (2 marks):

Change in assets

Change in liabilities

Change in retained earnings

External funding needed

b. Prepare a pro forma balance sheet with any financing adjustment made to notes payable.

c. Calculate the current ratio and total debt to assets ratio for each year ( 4 marks).

(8 marks)

Discuss your findings (4 marks)

Balance Sheet

Assets

Liabilities and Shareholders' Equity

Cash

Accounts payable

Account receivable

Accrued wages

Inventory

Accrued taxes

Current assets

Current liabilities

Capital assets

Notes payable

Long-term debt

Shareholders' Equity

Common shares

Retained earnings

Total liabilities

Total assets

and shareholders' equity