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    Pro-Forma Balance Sheets

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    Frog Hollow Bakery is a new firm specializing in all-natural-ingredient pastry products. In attempting to determine what the financial position of the firm should be, the financial manager obtained the following average ratios for the baking industry for 2004:

    Common equity to total assets = 60%
    Total asset turnover = 3 times
    Long-term debt to total capitalization = 25%
    Current ratio = 1.2
    Quick ratio = .75
    Average collection period (360-day year) = 10 days

    Complete a pro forma balance sheet for Frog Hollow Bakery assuming 2005 sales (all credit) are $450,000.

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    Solution Preview

    Frog Hollow Bakery is a new firm specializing in all-natural-ingredient pastry products. In attempting to determine what the financial position of the firm should be, the financial manager obtained the following average ratios for the baking industry for 2004:

    Common equity to total assets = 60%
    Total asset turnover = 3 times
    Long-term debt to total capitalization = 25%
    Current ratio = 1.2
    Quick ratio = .75
    Average collection period (360-day ...

    Solution Summary

    The solution explains how to prepare a pro-forma balance sheet based on the given ratios.

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