Reference no: EM132649709
Question - Use the following financial statements of Hakdogmie Cafe to prepare the financial plans.
Hakdogmie Café Income Statement for the Year Ended December 31, 2019
Sales revenue 800,000
Cost of goods sold 500,000
Gross profits 300,000
Operating expenses 100,000
Net profits before taxes 200,000
Less: Taxes (rate 30%) 60,000
Net profits after taxes 140,000
Hakdogmie Café Balance Sheet December 31, 2019
Assets
Cash 35,000
Marketable securities 20,000
Accounts receivable 150,000
Inventories 100,000
Total current assets 305,000
Fixed Assets 400,000
Accumulated Depreciation (75,000)
Net fixed assets 325,000
Total assets 630,000
Liabilities and Stockholders' Equity
Accounts payable 100,000
Taxes payable 30,000
Other current liabilities 10,000
Total current liabilities 140,000
Long-term debt 150,000
Common stock 150,000
Retained earnings 190,000
Total liabilities and stockholders' equity 630,000
The following financial data are also available:
(1) The firm has estimated that its sales for 2020 will be 900,000.
(2) The firm expects to pay 35,000 in cash dividends in 2020.
(3) The firm wishes to maintain a minimum cash balance of 35,000.
(4) Accounts receivable represent approximately 18% of annual sales.
(5) The firm's ending inventory will change directly with changes in sales in 2020.
(6) A new machine costing 45,000 will be purchased in 2020. Total depreciation for 2020 will be 18,000.
(7) Accounts payable will change directly in response to changes in sales in 2020.
(8) Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
(9) Other current liabilities will be 10% higher than last year
(10) Additional 2,000 long-term debt was acquired
(9) Marketable securities, and common stock will remain unchanged.
Required -
a. Prepare pro forma income statement for the year ended December 31, 2020, using the percent-of sales method.
b. Prepare pro forma balance sheet dated December 31, 2020, using the judgmental approach
c. Analyze these statements, and discuss the resulting external financing required.