Question

1. Use the following information to create a pro forma balance sheet for General Talc Mines as of December 31, 2010.

ASSETS
Cash	25000
Accounts Receivable	120000
Inventories	300000
Total current assets	445000
Net Fixed Assets	500000
Total Assets	945000
LIABILITIES & STOCKHOLDERS EQUITY
Equity accounts payable	80000
Notes Payable	350000
Accruals	50000
Total current liabilities	480000
Long-term debt	150000
Total Liabilities	630000
Common Stock	180000
Retained Earnings	135000
Total Stockholder's Equity	315000
Total Liabilities & Stockholders Equity	945000

A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2010. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet.

1. The firm estimates sales of $1,000,000
2. The firm maintains a cash balance of $25,000
3. Accounts receivable represents 15% of sales
4. Inventory represents 35% of sales
5. A new piece of mining equipment costing $150,000 will be purchased in 2010

Total depreciation for 2010 will be $75,000

6. Accounts payable represents 10% of sales
7. There will be no change in notes payable, accruals, and common stock
8. The firm plans to retire a long term note (debt) of $100,000
1. Dividends of $45,000 will be paid in 2010
10. The firm predicts a 4% net profit margin

Answer 1

General Talc Mines
Balance Sheet (Projected)
For the Year Ended Dec. 31, 2010
ASSETS
Cash	$       25,000
Account Receivable	$     150,000
Inventory	$     350,000
Total Current Assets	$   525,000
Net Fixed Assets	$     575,000
Total Assets	$1,110,000
LIABILITIES & STOCKHOLDERS' EQQUITY
Account Payable	$     100,000
Notes Payable	$     350,000
Accruals	$       50,000
Total Current Liabilities	$     500,000
Long Term Debt	$       50,000
Total Liabilities	$   550,000
Common Stock	$     180,000
Retained Earnings	$     380,000
Total Stockholders' Equity	$   560,000
Total Liabilities & Stockholders' Equity	$1,110,000
Explanation:
1. Cash to be maintained is $25,000.
2. Account Receivable is 15% of $1,000,000 sales, i.e.,$150,000.
3. Inventory is calculated 35% of $1,000,000; is $350,000.
4. Total Fixed Assets old plus new is $650,000, and Net Assets
after charging $75,000 Depreciation is $575,000.
5. Account Payable is 10% of $1,000,000.
6. Notes Payable is same $350,000 as given in proforma.
7. Accruals are same $50,000 as given in proforma.
8. Long term Debt were $150,000 and $100,000 is retired
or repaid. Thus, Balance is $50,000.
9. Common stock is same $180,000 as in proforma.
10 Retained Earning is the difference between the total
assets minus Total Liabilities minus Common stock. That
is = $1,110,000 - $550,000 - $180,000 = $380,000
11. Retained Earning Beg. Bal. for past years is:
$380,000 -$40,000 (profit-4% of$1,000,000) + $45,000 =
$385,000
Ending Retained Earning = $385,000 + $40,000 -$45,000 =
$380,000