You have recently been hired as Q & R Manufacturing's chief financial officer (CFO) by the firm's chief
executive officer (CEO). The CEO tells you that in the past, a lack of financial planning has frequently
caused the firm to have to rush out and get outside funding by either borrowing money (selling bonds)
or selling stock. He wants to avoid this going forward and has asked you to develop a plan (beginning with
this year's projected income statement) that will let him know ahead of time if external funds will need to
be raised to carry out next year's plans and budget.
Determine whether there will be an excess of funds or required new external funding needed for
next year, given the information below for Q & R Manufacturing.
Projected year-end income statement and balance sheets for the current 20XX0 year are as follows
Q & R Manufacturing Income Statement
Sales $100,000 100%
Cost of goods sold (COGS) $75,000 75%
Gross profit $25,000 25%
selling expenses $(15,000) -15%
administrative exp. $(1,000) -1%
marketing expenses $(2,000) -2%
Profit $7,000 7%
Q & R Manufacturing Balance Sheet
Assets Amount Liabilities + Stockholder's Equity Amount
Cash $30,000 Accounts Payable $15,000
Accounts Receivable $60,000 Bonds Payable $50,000
Inventory $50,000 Common Stock $113,000
Equipment $20,000 Retained Earnings $22,000
Assumptions: Sales next year (20XX1) are forecasted to increase 30%.
The solution creates an income statement (pro forma) and balance sheet (pro forma).