Pepperton's annual income statement and balance sheet for December 31, 2011, appear next. Additional information about the company's accounting methods and the treasurer's expectations for the first quarter of 2012 can be seen in the footnotes.
Pepperton Annual Income Statement
December 31, 2011 ($ thousands)
Net sales .......................................... $6,000
Cost of goods sold ............................... 3,900
Gross profits. ....................................... 2,100
Selling and administrative expenses ............ 1,620
Interest expense .................................... 90
Depreciation ........................................ 90
Net profit before tax .............................. 300
Tax (33%) ......................................... 99
Net profit after tax ................................ $201
Balance Sheet
December 31, 2011 ($ thousands)
Assets
Cash ....................................... $300
Accounts receivable ..................... 960
Inventory ................................. 1,800
Total current assets ...................... 3,060
Gross fixed assets ........................ 900
Accumulated depreciation ............... 150
Net fixed assets .......................... 750
Total assets ............................... $3,810
Liabilities
Bank loan .................................. $ 0
Accounts payable ......................... 1,740
Miscellaneous accruals .................... 60
Current portion long-term debt ............ 210
Taxes payable ............................... 300
Total current liabilities ................... 2,310
Long-term debt ............................ 990
Shareholders' equity ......................... 510
Total liabilities and equity ................... $3,810
a. Use this information and the information in problem 8 to construct a pro forma income statement for the first quarter of 2012 and a pro forma balance sheet for March 31, 2012. What is your estimated external financing need for March 31?
b. Does the March 31, 2012, estimated external financing equal your cash surplus (deficit) for this date from your cash budget in problem 8? Should it?
c. Do your pro forma forecasts tell you more than your cash budget does about Pepperton's financial prospects?
d. What do your pro forma income statement and balance sheet tell you about Pepperton's need for external financing on February 28, 2012?