ACE Corporation makes standard-size 2-inch paper clips, which it sells for P 155 per thousand. Jane Valdez, the major stockholder, manages the inventory and finances of the company. She estimates sales for the following months to be: +4+ January P263,500 (1,700,000 paper clips) February P186,000 (1,200,000 paper clips) March P217,000 (1,400,000 paper clips) April P310,000 (2,000,000 paper clips) May P387,500 (2,500,000 paper clips) Last year ACE Corporation's sales were P. 175,000 in November and P 232,500 in December (1,500,000 paper clips). Me. Valdez is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for the first quarter. Based on her sales forecast and the following information she has provided, you have to prepare a monthly cash budget, a monthly and quarterly pro forma income statement, a pro forma quarterly balance sheet, and all necessary supporting schedules for the first quarter.Past history shows that ACE Corporation collects 50 percent of its accounts receivable in the normal 30 - day credit period (the month after the sale) and the other 50 percent in 60 days (two months after the sale). It pays for its materials 30 days after receipt. In general, Ms. Valdez likes to keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of December was 2,600,000 units. (This was not equal to her desired two-month supply.) The major cost of production is the purchase of raw materials in the form of galvanized steel wire, which are cut, bended, and finished. Last year raw material costs were P 52 per 1,000 paper clips, but ME. Valdez has just been notified that material costs have risen, effective January 1, to P 60 per 1,000 paper clips. ACE Corporation uses FIFO inventory accounting. Labor costs are relatively constant at P 20 per thousand paper clips, since workers are paid on a piecework basis. Overhead is allocated at P10 per thousand units, and selling and administrative expense is 20 percent of sales. Labor expense and overhead are direct cash outflows paid in the month incurred, while interest and taxes are paid quarterly. The corporation usually maintains a minimum cash balance of P 25,000, and it puts its excess cash into marketable securities. The average tax rate is 40 percent, and the company usually pays out 50 percent of net income in dividends to stockholders. Marketable securities are sold before funds are borrowed when a cash shortage is faced. Ignore the interest on any short-term borrowings. Interest on the long-term debt is paid in March, as are taxes and dividends.As of year-end, the ACE Corporation balance sheet was as follows: ACE Corporation Balance Sheet December 31, 2006 ASSETS Current assets: Cash P 30.000 Accounts receivable 320.000 Inventory 237.800 Total current assets 587,800 Plant and equipment, net of accumulated depreciation of P200,000 800.000 Total Assets P1.387.800 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable P 93.600 Long-term debt, 8% 400.000 Common stock 504,200 Retained earnings 390.000 Total Liabilities and Stockholders' Equity P1.387.800