5 a new machine costing 90000 will be acquired during

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Unformatted text preview: 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 2004. (9) The December 31, 2003, balance sheet follows. Leonard Industries Balance Sheet December 31, 2003 Assets Cash Marketable securities Liabilities and Stockholders’ Equity $ 45,000 Accounts payable 15,000 Accruals Accounts receivable 255,000 Inventories 340,000 Total current assets Other current liabilities Total current liabilities $ 395,000 60,000 30,000 $ 485,000 $ 655,000 Long-term debt $ 350,000 Net fixed assets $ 600,000 Common stock $ 200,000 Total assets $1,255,000 Retained earnings $ 220,000 Total liabilities and stockholders’ equity $1,255,000 a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2004, for Leonard Industries. b. How much, if any, additional financing will Leonard Industries require in 2004? Discuss. CHAPTER 3 137 Cash Flow and Financial Planning c. Could Leonard Industries adjust its planned 2004 dividend to avoid the situation described in part b? Explain how. LG5 3–17 Pro forma balance sheet Peabody & Peabody has 2003 sales of $10 million. It wishes to analyze expected performance and financing needs for 2005—2 years ahead. Given the following information, respond to parts a and b. (1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3% (2) Marketable securities and other current liabilities are expected to remain unchanged. (3) A minimum cash balance of $480,000 is desired. (4) A new machine costing $650,000 will be acquired in 2004, and equipment costing $850,000 will be purchased in 2005. Total depreciation in 2004 is forecast as $290,000, and in 2005 $390,000 of depreciation will be taken. (5) Accruals are expected to rise to $500,000 by the end of 2005. (6) No sale or retirement of long-term debt is expected. (7) No sale or repurchase of common stock is expected. (8) The dividend payout of 50% of net profits is expected to continue. (9) Sales are expected to be $11 million in 2004 and $12 million in 2005. (10) The December 31, 2003, balance sheet follows. Peabody & Peabody Balance Sheet December 31, 2003 ($000) Assets Cash Marketable securities Liabilities and Stockholders’ Equity $ 400 200 Accounts receivable 1,200 Inventories 1,800 Total current assets Accounts payable Accruals Other current liabilities Total current liabilities $1,400 400 80 $1,880 $3,600 Long-term debt $2,000 Net fixed assets $4,000 Common equity $3,720 Total assets $7,600 Total liabilities and stockholders’ equity $7,600 a. Prepare a pro forma balance sheet dated December 31, 2005. b. Discuss the financing changes suggested by the statement prepared in part a. LG5 3–18 Integrative—Pro forma statements Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided in what follows to prepare the financial plans. 138 PART 1 Introduction to Managerial Finance Red Queen Restaurants Income Statement for the Year Ended December 31, 2003 Sales revenue $800,000 Less: Cost of goods sold 600,000 Gross profits $200,000 100,000 Less: Operating expenses Net profits before taxes Less: Taxes (rate $100,000 40%) 40,000 Net profits after taxes $ 60,000 Less: Cash dividends 20,000 To retained earnings $ 40,000 Red Queen Restaurants Balance Sheet December 31, 2003 Assets Cash Marketable securities Liabilities and Stockholders’ Equity $ 32,000 18,000 Accounts receivable 150,000 Inventories 100,000 Total current assets Accounts payable Taxes payable Other current liabilities Total current liabilities $100,000 20,000 5,000 $125,000 $300,000 Long-term debt $200,000 Net fixed assets $350,000 Common stock $150,000 Total assets $650,000 Retained earnings $175,000 Total liabilities and stockholders’ equity $650,000 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 depreciation 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 common 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 f...
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This document was uploaded on 01/19/2014.

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