Barry’s Superstore wishes to prepare financial plans. Use the financial statements on the next page and the other information provided below to prepare the financial plans. The following financial data are also available: (1) The firm has estimated that its sales for next year will be $130,000. (2) The firm expects to pay $30,000 in cash dividends. (3) The firm wishes to maintain a minimum cash balance of $25,000. (4) Accounts receivable represent approximately 20% of annual sales. (5) The firm’s ending inventory represents 60% of Cost of Goods Sold. (6) A new machine costing $15,000 will be purchased next year. (7) Accounts payable will increase by 5%. (8) Unearned Revenue will be earned. (9) Notes Payable would decrease by $5000. (10) Short-Term Investments and common stock will remain unchanged. Requirement: a. Prepare a pro forma income statement for the year ended December 31, 2021, using the percent-of-sales method. Tax Rate is expected to be 15%. b. Prepare a pro forma balance sheet dated December 31, 2021, using the judgmental approach. c. Analyze these statements, and discuss the resulting external financing required.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Barry’s Superstore wishes to prepare financial plans. Use the financial statements on the next page and the other information provided below to prepare the financial plans.

The following financial data are also available:

(1) The firm has estimated that its sales for next year will be $130,000.

(2) The firm expects to pay $30,000 in cash dividends.

(3) The firm wishes to maintain a minimum cash balance of $25,000.

(4) Accounts receivable represent approximately 20% of annual sales.

(5) The firm’s ending inventory represents 60% of Cost of Goods Sold.

(6) A new machine costing $15,000 will be purchased next year.

(7) Accounts payable will increase by 5%.

(8) Unearned Revenue will be earned.

(9) Notes Payable would decrease by $5000.

(10) Short-Term Investments and common stock will remain unchanged.

Requirement:

a. Prepare a pro forma income statement for the year ended December 31, 2021, using the percent-of-sales method. Tax Rate is expected to be 15%.

b. Prepare a pro forma balance sheet dated December 31, 2021, using the judgmental approach.

c. Analyze these statements, and discuss the resulting external financing required.

BARRY'S SUPERSTORE
BARRY'S SUPERSTORE
Comparative Year-End Income Statements
Comparative Year-End Balance Sheets
Prior Year
Current Year
Prior Year
Current Year
Net Sales
$100,000
$120,000
Assets:
Cost of Goods Sold
50,000
60,000
Cash
$90,000
$110,000
Gross Profit
50,000
60,000
Accounts Receivable
20,000
30,000
Inventory
35,000
40,000
Rent Expense
5,000
5,500
Short-Term Investments
15,000
20,000
Total Current Asstes
Depreciation Expense
Salaries Expense
Utility Expense
2,500
3,600
160,000
200,000
3,000
5,400
Equipment
40,000
50,000
1,500
2,500
Total Assets
$200,000
$250,000
Operating Income
38,000
43,000
Liabilities:
Accounts Payable
$ 60,000
$ 75,000
Interest Expense
Income Tax Expense
3,000
2,000
Unearned Revenue
10,000
25,000
5,000
6,000
Total Current Liabilities
70,000
100,000
Net Income
$ 30,000
$ 35,000
Notes Payable
40,000
50,000
Total Liabilities
110,000
150,000
Stockholder Equity
Common Stock
75,000
80,000
Ending Retained Earnings
Total Stockholder Equity
Total Liabilities and Stockholder Equity
15,000
20,000
90,000
100,000
$200,000
$250,000
Transcribed Image Text:BARRY'S SUPERSTORE BARRY'S SUPERSTORE Comparative Year-End Income Statements Comparative Year-End Balance Sheets Prior Year Current Year Prior Year Current Year Net Sales $100,000 $120,000 Assets: Cost of Goods Sold 50,000 60,000 Cash $90,000 $110,000 Gross Profit 50,000 60,000 Accounts Receivable 20,000 30,000 Inventory 35,000 40,000 Rent Expense 5,000 5,500 Short-Term Investments 15,000 20,000 Total Current Asstes Depreciation Expense Salaries Expense Utility Expense 2,500 3,600 160,000 200,000 3,000 5,400 Equipment 40,000 50,000 1,500 2,500 Total Assets $200,000 $250,000 Operating Income 38,000 43,000 Liabilities: Accounts Payable $ 60,000 $ 75,000 Interest Expense Income Tax Expense 3,000 2,000 Unearned Revenue 10,000 25,000 5,000 6,000 Total Current Liabilities 70,000 100,000 Net Income $ 30,000 $ 35,000 Notes Payable 40,000 50,000 Total Liabilities 110,000 150,000 Stockholder Equity Common Stock 75,000 80,000 Ending Retained Earnings Total Stockholder Equity Total Liabilities and Stockholder Equity 15,000 20,000 90,000 100,000 $200,000 $250,000
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