A-3.2 Davis Travel Ltd. specializes in winter sports holidays but also organizes outdoor activity holidays in summer. You are given the following information: Davis Travel Ltd. Balance Sheet As at September 30, 2010 (in $ thousands) Current assets Cash 30 Property, plant, and equipment 560 Total assets 590 180 Current liabilities Accounts payable Long-term liabilities Bank loan payable Total liabilities 110 290 Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 100 200 300 590 Number of Bookings Received Number of Holidays Taken Promotion Expense ($000) 100 150 October November December January February March Total 1,000 3,000 3,000 3,000 150 50 1,000 4,000 3,000 2,000 10,000 10,000 450 1. Vacation packages sell for $300 each. Ten percent is payable when the holiday is booked, and the remainder after two months. 2. Travel agents are paid a commission of 10% of the price of the holiday one month after the booking is made. 3. The cost of travel by train is $50 per holiday and a hotel is $100 per holiday. Trains and hotels must be paid for in the month when the holidays are taken. 4. Other variable costs are $20 per holiday and are paid in the month of the holiday. 5. Administration costs, including depreciation of property, plant, and equipment of $42,000, amount to $402,000 for the six months. Administration costs can be spread evenly over the period. 6. Loan interest of $10,000 is payable on March 31, 2011, and a loan repayment of $20,000 is due on that date. For your calculations you should ignore any interest on the overdraft. 7. Accounts payable of $180,000 at September 30 are to be paid in October. 8. A payment of $50,000 for equipment assets is to be made in March 2011, 9. The railroad company and the hotel chain base their charges on Davis Travel's forecast requirements and hold capacity to meet those requirements. If Davis is unable to fill this reserved capacity, a charge of 50% of the rates noted above is made on unused train seats and hotel rooms, Required: (a) Prepare: (1) A projected cash budget for each of the six months ending March 31, 2011. (ii) A pro forma income statement for the six months ended on that date. (iii) A pro forma statement of retained earnings for the six months ended on March 31, 2011. (iv) A pro forma balance sheet at March 31, 2011. (b) Discuss the main financial problems confronting Davis Travel Ltd. Ignore taxation in your calculations