Leonard Industries wishes to estimate how much financing they will need using a pro forma balance...

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Finance

Leonard Industries wishes to estimate how much financing theywill need using a pro forma balance sheet for December 31, 2017.The firm expects 2017 sales to total $3,000,000. The followinginformation has been provided: ?
A mimimum cash balance of $50,000 is desired. ?
Marketable securities, accruals, other current liabilities,long-term debt, and common shares are expected to remain unchanged.?
Accounts Receivable represent 10% of sales. ?
Inventories represent 12% of sales. ?
A new machine costing $90,000 will be acquired during 2017.
Total depreciation for the year will be $32,000.
Assume the existing assets were fully deprecisted. ?
Accounts payable represent 14% of sales. ?
The firm’s net profit margin is 4%. ?
The firm expects to pay out $70,000 in cash dividends during2017. ?
The December 31,2016 balance sheet follows.
Assets Liabilities and Shareholder 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 340,000    Total Current Liabilities$485,000
Total Current Assets $655,000    Long-term Debt350,000
Net Fixed Assets 600,000 Total Liabilities $835,000
   Common Shares 200,000
   Retained Earnings 220,000
Total assets = Total Liabilities and Shareholder Equity =$1,255,000
How much, if any, additional financing will Leonard Industriesrequire in 2017?
Describe at least three specific adjustments Leonard Industriescould make to avoid the need for financing or planned excess.Provide these adjustments and the amounts of the adjustments.
Which of these adjustments, if any should they make?

Answer & Explanation Solved by verified expert

3.8 Ratings (440 Votes)

Part a The additional financing Leonard Industries will require in 2017 is determined as below Proforma Balance Sheet Leonard Industries December 31 2017 Assets Current Assets Cash 50000 Marketable Securities 15000 Accounts Receivable 300000 Inventories 360000 Total Current Assets 725000 Net Fixed Assets 600000 90000 32000 658000 Total Assets 1383000 Liabilities and Stockholders Equity Current Liabilities Accounts Payable 420000 Accruals See Answer

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Leonard Industries wishes to estimate how much financing theywill need using a pro forma balance sheet for December 31, 2017.The firm expects 2017 sales to total $3,000,000. The followinginformation has been provided: ?A mimimum cash balance of $50,000 is desired. ?Marketable securities, accruals, other current liabilities,long-term debt, and common shares are expected to remain unchanged.?Accounts Receivable represent 10% of sales. ?Inventories represent 12% of sales. ?A new machine costing $90,000 will be acquired during 2017.Total depreciation for the year will be $32,000.Assume the existing assets were fully deprecisted. ?Accounts payable represent 14% of sales. ?The firm’s net profit margin is 4%. ?The firm expects to pay out $70,000 in cash dividends during2017. ?The December 31,2016 balance sheet follows.Assets Liabilities and Shareholder EquityCash $45,000 Accounts Payable $395,000Marketable Securities 15,000 Accruals 60,000Accounts Receivable 255,000 Other current liabilities 30,000Inventories 340,000 Total Current Liabilities$485,000Total Current Assets $655,000 Long-term Debt350,000Net Fixed Assets 600,000 Total Liabilities $835,000 Common Shares 200,000 Retained Earnings 220,000Total assets = Total Liabilities and Shareholder Equity =$1,255,000How much, if any, additional financing will Leonard Industriesrequire in 2017?Describe at least three specific adjustments Leonard Industriescould make to avoid the need for financing or planned excess.Provide these adjustments and the amounts of the adjustments.Which of these adjustments, if any should they make?