138 PART 1 Introduction to Managerial Finance
The following financial data are also available:
(1) The firm has estimated that its sales for 2004 will be $900,000.
(2) The firm expects to pay $35,000 in cash dividends in 2004.
(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
2004.
(6) A new machine costing $42,000 will be purchased in 2004. Total depre-
ciation for 2004 will be $17,000.
(7) Accounts payable will change directly in response to changes in sales in
2004.
(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 com-
mon stock will remain unchanged.
a. Prepare a pro forma income statement for the year ended December 31,
2004, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2004, using the judg-
mental approach.Red Queen Restaurants
Balance Sheet
December 31, 2003
Assets Liabilities and Stockholders’ EquityCash $ 32,000 Accounts payable $100,000
Marketable securities 18,000 Taxes payable 20,000Accounts receivable 150,000 Other current liabilities (^5) , (^0) (^0) (^0)
Inventories (^1) (^0) (^0) , (^0) (^0) (^0) Total current liabilities $125,000
Total current assets $300,000 Long-term debt $200,000
Net fixed assets $ (^3) (^5) (^0) , (^0) (^0) (^0) Common stock $150,000
Total assets $
6
5
0
,
0
0
0
Retained earnings $ (^1) (^7) (^5) , (^0) (^0) (^0)
Total liabilities and
stockholders’ equity $
6
5
0
,
0
0
0
Red Queen Restaurants
Income Statement for the
Year Ended December 31, 2003
Sales revenue $800,000
Less: Cost of goods sold (^6) (^0) (^0) , (^0) (^0) (^0)
Gross profits $200,000
Less: Operating expenses (^1) (^0) (^0) , (^0) (^0) (^0)
Net profits before taxes $100,000
Less: Taxes (rate40%) (^4) (^0) , (^0) (^0) (^0)
Net profits after taxes $ 60,000
Less: Cash dividends (^2) (^0) , (^0) (^0) (^0)
To retained earnings $
4
0
,
0
0
0