Abru Industries has decided to prepare financial plans. Use the financial statements and other information provided below to prepare the financial plans.

(1) The firm has estimated that its sales for 2020 will be €2.7 million.

(2) The firm expects to pay €110,000 in cash dividend in 2020.

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

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

(5) The closing inventory is expected to change directly in line with the changes in sales in 2020.

(6) The firm will invest in a new production unit costing €120,000. The depreciation chargeable for 2020 will be €40,000.

(7) Accounts payable will change directly with change in sales in 2020.

Other items in financial statements including interest expense and tax rate will remain unchanged.

a. Prepare a pro forma income statement for year ended December 31, 2020, using percent-of-sales method.

b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.

c. Analyze these statements and discuss if any external financing is required.

Transcribed Image Text:

Abru Industries Income Statement for Year Ended December 31, 2019 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expenses Net profit before taxes Less: Taxes (rate= 30%) Net profit after taxes Less: cash dividends To retained earnings 3,200,000 2,400,000 800,000 400,000 400,000 20,000 380,000 114,000 266,000 60000 206,000