Question

Pro forma balance sheet: Basic Leonard Industries wishes to prepare a pro forma balance sheet for December 31, 2020. The firm expects 2020 sales to total $3,000,000. The following information has been gathered: (1) A minimum cash balance of $50,000 is desired. (2) Marketable securities are expected to remain unchanged. (3) Accounts receivable represent 10% of sales. (4) Inventories represent 12% of sales. (5) A new machine costing $90,000 will be acquired during 2020. Total deprecia- tion for the year will be $32,000. (6) Accounts payable represent 14% of sales. (7) Accruals, other current liabilities, long-term debt, and common stock are expected to remain unchanged. (8) The firm's net profit margin is 4%, and it expects to pay out $70,000 in cash dividends during 2020. (9) The December 31, 2019, balance sheet follows.

Answer 1

Leonard Industries Balance Sheet December 31,2020

Assets		Liabilities and Stakeholder's Equity
Cash Balance	50,000	Accounts payable	420,000
Marketable Securities	15,000	Accruals	60,000
Accounts Receivable	300,000	Other Current Liabilities	30,000
Inventories	360,000	Total Current Liabilities	510,000
Total Current Assets	725,000	Long Term Debt	350,000
Net Fixed Assets(Note:1)	658,000	Total Liabilities	860,000
Total Assets	1,383,000	Common Stock	200,000
		Retained Earnings(Note:2)	270,000
		Total Liabilities and Stakeholder's Equity	1,330,000

Note:1 Valuation of Fixed Assets on December,31,2020

Value of Assets on December 30,2019: 600,000

Addition on Assets: 90,000

Less: Depreciation for the year (32,000)

Value of an Assets as on 31st December 658,000

Note:2 Computation of Retained Earning

Retained Earning: 220,000

Profit for this year:120,000 (4% of Sales)

Less: Dividend Paid:(70,000)

Retained Earning for Current Year: 270,000

2. Leonard will require an additional financing of 33,000.

3. Yes, Leonard can planned to pay less amount for dividend. Else company have to borrow an amount. Payment of less dividend in this year comes to more profit and more retained can not lead to borrow money from other sources.