Question

Integrative Pro forma statements Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided here囲to prepare the financial plans. The following financial data are also available (1) The firm has estimated that its sales for 2016 will be $900,300 (2) The firm expects to pay $35,900 in cash dividends in 2016 (3) The firm wishes to maintain a minimum cash balance of $30,500 (4) Accounts receivable represent approximately 24% of annual sales (5) The firm's ending inventory will change directly with changes in sales in 2016 (6) A new machine costing $42,900 will be purchased in 2016. Total depreciation for 2016 will be $15,800 (7) Accounts payable will change directly in response to changes in sales in 2016 (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 will remain unchangecd a. Prepare a pro forma income statement for the year ended December 31, 2016, using the percent-of-sales method b. Prepare a pro forma balance sheet dated December 31, 2016, using the judgmental approach c. Analyze these statements, and discuss the resulting external financing required a. Prepare a pro forma income statement for the year ended December 31, 2016, using the percent-of-sales method Complete the pro forma income statement for the year ended December 31, 2016 below: (Round to the nearest dollar. Round the percentage of sales to four decimal places.) Pro Forma Income Statement Red Queen Restaurants for the Year Ended December 31, 2016 (percent-of-sales method) 900,300 Sales Less: Cost of goods sold Gross profits Less: Operating expenses Net profits before taxes Less: Taxes (rate-40%) Net profits after taxes Less: Cash dividends To Retained earnings 749975 % 12.4562 % 35,900

Answer 1

a. Pro forma income statement, 2016

Particulars	Amount ($)
Sales	900,300
- COGS	674,662.3125
Gross profit	225,637.6875
- Operating expenses	28,106
PBT	197,531.6875
- taxes@40%	79,012.675
PAT	118,519.0125
- Cash dividends	35,900
Retained earnings	82,619.0125

Therefore, retained earnings as per income statement for year 2016 is $82,619

b. Balancesheet, 2016

Assets	Amount ($)	Liabilities and equity	Amount ($)
Cash	30,500	Accounts payable (percent of sales)	111,727
Marketable securities	17,600	Taxes payable	19,753
Accounts receivable	216,072	other CL	4,100
Inventories (percent of sales)	112,808	Total CL
Total CA		Long term debt	202,300
Net fixed assets - 350,800		Common stock	150,000
- New machine - 42,900		Retained earnings (+82,619)	257,619
- Depreciation - (15,800)	377,900
	754,880		745,499

Remark: The difference in balancesheet total shows that external financing worth $9,381 is required in year 3016