Problem:
You have recently been hired as Q & R Manufacturing's chief financial officer (CFO) by the firm's chief executive officer (CEO). The CEO tells you that in the past, a lack of financial planning has frequently caused the firm to have to rush out and get outside funding by either borrowing money (selling bonds) or selling stock. He wants to avoid this going forward and has asked you to develop a plan (beginning with this year's projected income statement) that will let him know ahead of time if external funds will need to be raised to carry out next year's plans and budget.
Determine whether there will be an excess of funds or required new external funding needed for next year, given the information below for Q & R Manufacturing.
Projected year-end income statement and balance sheets for the current 20XX0 year are as follows:
| Q & R Manufacturing Income Statement |
| 20XX0 [projected] |
| Sales |
$ 100,000 |
100% |
| Cost of goods sold (COGS) |
$ 75,000 |
75% |
| Gross profit |
$ 25,000 |
25% |
| selling expenses |
$ (15,000) |
-15% |
| administrative exp. |
$ (1,000) |
-1% |
| marketing expenses |
$ (2,000) |
-2% |
| Profit |
$ 7,000 |
7% |
| Q & R Manufacturing Balance Sheet |
| 12/31/20XX0 [projected] |
| Assets |
Amount |
Liabilities + Stockholder's Equity |
Amount |
| Cash |
$ 30,000 |
Accounts Payable |
|
$ 15,000 |
| Accounts Receivable |
$ 60,000 |
Bonds Payable |
|
$ 50,000 |
| Inventory |
$ 50,000 |
Common Stock |
|
$ 113,000 |
| Equipment |
$ 20,000 |
Retained Earnings |
|
$ 22,000 |
| Buildings |
$ 40,000 |
|
|
|
|
| |
$ 200,000 |
|
|
|
$ 200,000 |
Assumptions: Sales next year (20XX1) are forecasted to increase 30%.
• Create an income statement (pro forma) and balance sheet (pro forma). Each pro forma should have the same information given in the financial statements above.