Basic Leonard Industries wishes to prepare a pro forma balance sheet for next year. The firm expects sales to total $3,000,000. The following information has been gathered:

(1) A minimum cash balance of $50,000 is desired.

(2) Marketable securities will remain unchanged.

(3) Accounts receivable represent 10% of sales.

(4) Inventories represent 12% of sales.

(5) Leonard will acquire a new machine costing $90,000. Total depreciation for the year will be $32,000.

(6) Accounts payable represent 14% of sales.

(7) Accruals, other current liabilities, long-term debt, and common stock will remain unchanged.

(8) The firm’s net profit margin is 4%, and it expects to pay out $70,000 in cash dividends next year.
(9) The most recent balance sheet follows.

a. Use the judgmental approach to prepare a pro forma balance sheet for next year.

b. How much, if any, additional financing will Leonard Industries require? Discuss.

c. Could Leonard Industries adjust its planned dividend to avoid the situation described in part b? Explain how.

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Assets Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets Leonard Industries Balance Sheet $ 45,000 15,000 255,000 340,000 $ 655,000 600,000 $1,255,000 Liabilities and stockholders' equity Accounts payable Accruals Other current liabilities Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total liabilities and stockholders' equity $ 395,000 60,000 30,000 $ 485,000 350,000 $ 835,000 200,000 220,000 $1,255,000