A Financial Manager at General Talc Mines Has Gathered the Financial

question 110

Multiple Choice

A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2004. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions.

A. The firm estimates sales of $1,000,000.
B. The firm maintains a cash balance of $25,000.
C. Accounts receivable represents 15 percent of sales. D. Inventory represents 35 percent of sales.
E. A new piece of mining equipment costing $150,000 will be purchased in 2004.
Total depreciation for 2004 will be $75,000.
F. Accounts payable represents 10 percent of sales.
G. There will be no change in notes payable, accruals, and common stock.
H. The firm plans to retire a long term note of $100,000. I. Dividends of $45,000 will be paid in 2004.
J. The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2003
Assets
$\begin{array}{lr}\hline\text { Cash } & \$ 25,000 \\\text { Accounts receivable } & 120,000 \\\text { Inventories } & 300,000 \\& -\ldots . . . \\\quad \text { Total current assets } & \$ 445,000 \\\text { Net fixed assets } & \$ 500,000\\& -\ldots . . . \\\text { Total assets }&\$945,000\\\\\text { Liabilities and stockholders' equity }\\\hline\text { Accounts payable } & \$ 80,000 \\\text { Notes payable } & 350,000 \\\text { Accruals } & 50,000\\& -\ldots . . . \\\text { Total current liabilities } & \$ 480,000 \\\text { Long-term debts } & 150,000\\\text { Total liabilities } & \$ 630,000 \\\text { Stockholders' equity } & \\\text { Common stock } & \$ 180,000 \\\text { Retained earnings } & 135,000\\\text { Total stockholders' equity } & \$ 315,000 \\\text { Total liabilities and stockholders' equity } & \$ 945,000\end{array}$
-If General Talc Mines cannot raise the external financing required through traditional credit channels, the firm may (See Figure 4.3)

• A) factor accounts receivable.
• B) increase sales.
• C) sell common stock.
• D) purchase additional fixed assets to raise productivity.

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