A Financial Manager at General Talc Mines Has Gathered the Financial

question 98

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
$\begin{array}{lr}\hline\text { Cash } & \$ 25,000 \\\text { Accounts receivable } & 120,000 \\\text { Inventories } & 300,000 \\& -\ldots . . . \\\quad \text { Total current assets } & \$ 445,000 \\\text { Net fixed assets } & \$ 500,000\\& -\ldots . . . \\\text { Total assets }&\$945,000\\\\\text { Liabilities and stockholders' equity }\\\hline\text { Accounts payable } & \$ 80,000 \\\text { Notes payable } & 350,000 \\\text { Accruals } & 50,000\\& -\ldots . . . \\\text { Total current liabilities } & \$ 480,000 \\\text { Long-term debts } & 150,000\\\text { Total liabilities } & \$ 630,000 \\\text { Stockholders' equity } & \\\text { Common stock } & \$ 180,000 \\\text { Retained earnings } & 135,000\\\text { Total stockholders' equity } & \$ 315,000 \\\text { Total liabilities and stockholders' equity } & \$ 945,000\end{array}$
-The external financing required in 2004 will be__________

• A) $230,000
• B) $195,000
• C) $0
• D) $240,000

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Definitions:

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, including balance sheets, income statements, and more.

50% Interest

A financial or ownership stake in an entity or asset, where the holder owns or is entitled to one-half of the interest in the subject matter.

Equity Method

An accounting technique used to record investments in other companies, where the investment is significant but does not grant control over the company.

Significant Influence

The ability to affect the financial and operating policies of another entity through ownership, contract, or other means, without having full control or ownership.