Proforma balance sheet: Basic Leonard Industries wishes to prepare a proforma balance sheet for December 31, 2016. The firm expects 2016 sales to total $3,000,000. The following information has been gathered:
(1) A minimum cash balance of $50,000 is desired.
(2) Marketable securities are expected to remain unchanged.
(3) Accounts receivable represent 10% of sales.
(4) Inventories represent 12% of sales.
(5) A new machine costing $90,000 will be acquired during 2016. Total depreciation 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 2016.
(9) The December 31, 2015, balance sheet follows.
Use the judgmental approach to prepare a pro forma balance sheet dated
December 31, 2016, for Leonard Industries.
b. How much, if any, additional financing will Leonard Industries require in 2016?
Discuss.
c. Could Leonard Industries adjust its planned 2016 dividend to avoid the situation
described in part b? Explain how.
Assets Liabilities and stockholders' equity
Cash $ 45,000 Accounts payable $ 395,000
Marketable securities 15,000 Accruals 60,000
Accounts receivable 255,000 Other current liabilities 30,000
Inventories Total current liabilities $ 485,000 340,000
Total current assets $ 655,000 Long-term debt 350,000
Net fixed assets Total liabilities 600,000 $ 835,000
Total assets $ 1,255,000 Common stock 200,000
Retained earnings 220,000
Total liabilities and
stockholders'