Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided here to prepare the financial plans. The following financial data are also available:
(1) The firm has estimated that its sales for 2020 will be $900,600.
(2) The firm expects to pay $35,600 in cash dividends in 2020.
(3) The firm wishes to maintain a minimum cash balance of $30,000.
(4) Accounts receivable represent approximately 21% of annual sales.
(5) The firm's ending inventory will change directly with changes in sales in 2020.
(6) A new machine costing $42,000 will be purchased in 2020. Total depreciation for2020 will be $16,700.
(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) Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
a. Prepare a pro forma income statement for the year ended December 31, 2020, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.