Question

 Leonard Industries wishes to prepare a pro forma balance sheet for December​ 31,

20202020.

The firm expects

20202020

sales to total

$ 3 comma 000 comma 000$3,000,000.

The following information has been gathered.

​(1) A minimum cash balance of

$ 49 comma 600$49,600

is desired.

​(2) Marketable securities are expected to remain unchanged.

​(3) Accounts receivable represent

9.9 %9.9%

of sales.

​(4) Inventories represent

11.9 %11.9%

of sales.

​(5) A new machine costing

$ 89 comma 500$89,500

will be acquired during

20202020.

Total depreciation for the year will be

$ 32 comma 100$32,100.

​(6) Accounts payable represent

14.4 %14.4%

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

4.1 %4.1%​,

and it expects to pay out

$ 69 comma 900$69,900

in cash dividends during

20202020.

​(9) The December​ 31,

20192019​,

balance sheet follows

Leonard Industries Balance Sheet December​ 31, 20192019					Copy to Clipboard + Open in Excel +
Assets			Liabilities and​ Stockholders' Equity
Cash	$ 45 comma 100$45,100		Accounts payable	$ 394 comma 600$394,600
Marketable securities	14 comma 70014,700		Accruals	59 comma 90059,900
Accounts receivable	255 comma 200255,200		Other current liabilities	30 comma 00030,000
Inventories	339 comma 900339,900		Total current liabilities	$ 484 comma 500$484,500
Total current assets	$ 654 comma 900$654,900		​Long-term debt	350 comma 900350,900
Net fixed assets	599 comma 900599,900		Common stock	199 comma 700199,700
			Retained earnings	219 comma 700219,700
Total assets	$ 1 comma 254 comma 800$1,254,800		Total liabilities and​ stockholders' equity	$ 1 comma 254 comma 800$1,254,800

.

a. Use the judgmental approach to prepare a pro forma balance sheet dated December​ 31,

20202020​,

for Leonard Industries.

b. How​ much, if​ any, additional financing will Leonard Industries require in

20202020​?

Discuss.

c. Could Leonard Industries adjust its planned

20202020

dividend to avoid the situation described in part

b​?

Explain how.

a. Use the judgmental approach to prepare a pro forma balance sheet dated December​ 31,

20202020​,

for Leonard Industries.Complete the assets part of the pro forma balance sheet for Leonard Industries for December​ 31,

20202020

​below:  ​(Round to the nearest​ dollar.)

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Pro Forma Balance Sheet
Leonard Industries
December 31, 2020
Assets
Current assets
Cash	$
Marketable securities
Accounts receivable
Inventories
Total current assets	$
Net fixed assets
Total assets	$

Answer 1

Firstly we have to make calculation of the value of Assumption

Sales = $300,000

Minimum Cash Balance = $49,600

Marketable Security will remain unchanged i.e = $14,700.

Accounts receivable = Sales x 9.9% =$297,000

Inventory = Sales X 11.9% =$357,000

Fixed Assets =

Opening Balance $599,900

Add : New Machine Cost $59,900

Less : Depreciation $32,100

Net Fixed Assets $657,300

Accounts Payable = Sales x 14.4% =$432,000

Accruals, other current​ liabilities, long-term​ debt, and common stock are expected to remain unchanged

Hence ,

Accruals = $59,900 , Other Current liabilities = $30,000, Long Term Debt =$350,900, Common Stock =$199,700.

Net Profit = Sales X 4.1% =$123,000

Closing Balance of Retained Earning

Opening Balance = $219,700

Add : Net Profit = $123,700

Total = $342,700

Less : Dividend = $69,900

Closing Retained Earning = $272,800

Hence ,

Pro Forma Balance Sheet
Leonard Industries
December 31,2020
Assets
Current Assets
Cash	$        49,600
Accounts Receivable	$     297,000
Marketable Security	$        14,700
Inventory	$     357,000
Total Current Asset	$     718,300
Net Fixed Assets	$     657,300
Total Assets	$ 1,375,600
Current Liabilities
Accounts Payable	$     432,000
Accruals	$        59,900
Other current liabilities	$        30,000
Total Current Liabilities	$     521,900
Long term Debt	$     350,900
Common Stock	$     199,700
Retained Earning	$     272,800
Total liabilities and stockholders' equity	$ 1,345,300

Here Total Assets is $1,375,600 and Total liabilities and stockholders' equity $1,345,300 . Assets is excess of $30,300 ,Hence liability is less than asset So there is not fund requirement , company have sufficient fund to rung the business.

Could Leonard Industries adjust its planned

20202020 dividend to avoid the situation described in part b​?

Yes , as we have already adjust the dividend the part with retained earning still there is excess fund of $30,300 with the company . There is no requirement of fund.