Reference no: EM133005738
Question - Leonard Industries wants to prepare a pro forma balance sheet by December 31, 2013. The company expects 2013 sales to be $ 3 million. The following information has been collected:
A minimum cash balance of $ 50,000 is desired.
Marketable securities are expected to remain unchanged.
Accounts receivable represent 10% of sales.
Inventories represent 12% of sales.
During 2013 a new machine will be purchased at a cost of $ 90,000. Total depreciation for the year will be $ 32,000.
Accounts payable represent 14% of sales.
Accumulated debt, other current liabilities, long-term debt, and common stocks are expected to remain unchanged.
The company's net profit margin is 4% and it is expected to pay $ 70,000 of cash dividends during 2013.
The following is the balance sheet for December 31, 2012.
Assets
Cash 45000
Negotiable values 15000
Accounts receivable 255000
Inventories 340000
Total current assets 655000
Net fixed assets 6000000
Total assets 1255000
Liabilities and equity
Debts to pay 395000
Accumulated debts 60000
Other current liabilities 30000
Total current liabilities 485000
Long term debt 350000
Total liabilities 835000
Common actions 2000000
Retained earnings 220000
Total liabilities and shareholders' equity 1255000
You are asked to:
a) Use the critical method to make a pro forma balance sheet for Leonard Industries as of December 31, 2013.
b) How much additional financing will Leonard Industries require in 2013, if any? Analyze your answer.
c) Could Leonard Industries adjust its planned dividend for 2013 in order to avoid the situation described in part b)? Explain how.