Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans. The following financial data are also available:
(1) The firm has estimated that its sales for 2013 will be $900,000.
(2) The firm expects to pay $35,000 in cash dividends in 2013.
(3) The firm wishes to maintain a minimum cash balance of $30,000.
(4) Accounts receivable represent approximately 18% of annual sales.
(5) The firm’s ending inventory will change directly with changes in sales in 2013.
(6) A new machine costing $42,000 will be purchased in 2013. Total depreciation for 2013 will be $17,000.
(7) Accounts payable will change directly in response to changes in sales in 2013.
(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 wll remain unchanged.
a. Prepare a pro forma income statement for the year ended December 31, 2013, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2013, using the judgmental approach.
c. Analyze these statements, and discuss the resulting external financing required.
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