Company X, a manufacturing company, has been growing quickly but has found that its financial situation is continually under pressure. Production has fluctuated to meet demand in an attempt to provide first-class service resulting in larger inventory positions. Also, the collection of accounts has worsened to approximately 60 days which is well above the terms of 30 days. To address the finanical concerns, Toys for You has proposed level production and an effort by the credit department to bring the average collection period down to 35 days Estimated sales for the upcoming months are July $1,957,500 October 2,362,500 August2,070,000 November 2,475,000 September 2205,000 Decembel 2 565,000 Sales for May were $1,732,500 and will be approximately $1,845,000 for the current month of June It is projected that the current collection period of 60 days will be reduces to 50 days for July and August, 42 days for September and October, and will meet the target of 35 days in November and December Purchases are forecast to be $585,000 a month beginning in July In May they were $675,000 and in June they are expected to be $607,500. The purchases are paid in 40 days. Materials used per month beginning in July will be $744,000. Labour expense will be paid when incurred and are expected to be $195,000 a month. Other expenses of manufacturing will also be paid as incurred and are expected to be $375,000 a month. Cost of goods sold has regularly been 70 percent of sales Amortization is $38,000 per month. Selling and administrative expenses are expected to be 13 percent of sales The tax rate is 42 percent There will be payments on notes of $675,000 in each of August and November. Interest of $270,000 and income taxes of $338,000 are both due in October. Dividends of $22,500 are payable in July and October Company X Balance Sheet (estimated) June 30, 2016 ($ thousands) Assets Current assets Cash Accounts receivable Inventory $666 3,578 8.231 12,475 Total current assets Capital assets Plant and equipment Less: Accumulated amortization 11,273 4.7 846489 $18.964 Total assets Liabilities and Shareholders' Equity Current liabilities $945 3,700 2596 7,241 4,725 4,500 2498 Accounts payable Notes payable Accrued liabilities Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and shareholders' equity Using the information above, prepare proforma statements for Company X for the three months ending September and December 2016. Also construct a cash budget for the six-month period and identify any need for short-term financing. There are no changes in accounts not mentioned above. Comment on the policy changes and examine the consequences if the collection period remains at 60 days. Assume capital assets are sufficient for increased sales PLEASE VALIDATE MY MATH IN THE ANSWERS BELOw Company X Income Statements Estimated Sales July August September October November December 1,958 2,070 2,205 2,363 2,475 2,565 Sales Cost of goods sold Gross profit Selling & admin. Amortization Operating Profit Interest Profit before taxes Taxes (42%) Net income September December 6,232.5 7402.5 4,362.85,181.8 1,869.82,2208 962.3 114.0 945.5 1,144.4 270.0 874.4 367.3 507.2 810.2 114.0 0.0 945.5 COGS 548.4 195 375 570 Labour expense Manufacturing expense Total COGS 22.5 22.5 Dividends To retained earnings 525.9 484.7 Summary of all monthly cash payments in thousands May June July Augustsept. October Nov. Dec. Purchases Payment Accounts payable Labour Selling & admin Other Note payable Interest Taxes Dividends Total payments $675.0$607.5 $585.0 $585.0 $585.0 $585.0$585.0 $585.0 $452.25 $629.78 $592.43 $585.0 $585.0$585.0$585.O 945.0$900.2$892.8 $892.8 $892.8$892.8$8928 $195.0 $195.0 $195.0 $195.0$195.0 $195.0 $254.5 $269.1 $286.7$307.1 $321.8 $333.5 S3750 $3750 $375.0 $375.0 $3750 $375.0 675.0 $675.0 $270.0 $338.0 $22.5 Monthly Collection on Sales or Monthly Cash Receipts Sept July August October Nov Dec. May 1,733.0 1,845.0 1,957.5 2,070.02,205.0 2,362.5 2,475.02,565.0 June Sales Collections 60 days 50 days 42 days 35 days Total collections Accounts receivable 1,733.01,845. 6525| 1,995 1,380 01 1,323.0 1,323.0 945.0 2,062.5 1,733.0 24975 1,995.0 2,703.0 1,323.0 3,0075 3,578.0 3,802.5 3,375.0 3,585.0 3,244.5 4,396.5 3,954.0 60 Days Monthly Collection on Sales or Monthly Cash Receipts May June JulyAugustSept. October Nov 1.733.00 1.845.00 1.957.50 2.070.00 2.205.00 2,362.50 2,475.00 2,565.00 Dec. Sales Collections 60 days 50 days 42 days 35 days Total collections Accounts receivable 1,733.00 1,845.00 1,957.50 2,070.00 2,205.00 2,362 1,733.00 1,845.00 1,957.50 2,070.00 2,205.00 2,362.50 3,578.00 224. 225.00 2,205.0o 2,362.50 2,475.00 2,565.00 Dec. May June July August Sept. October Nov Total Cash Receipts Total Payments et Cash Flow 1.733.00 1,84500 1957.50 2.070.00 2,205.002,362.50 1476.8 $2,1065 $1.441.7 $2.0926 $2.151.8 51,488.5 $256.20 | ($261 50) S515.80 | ($22 601 S53.20 $874.00 uly August Sept. October Nov June Dec. Cash Budget Net cash flow Beginning cash balance Ending cash balance May 256.20 ($261.50 $515.80 ($22.60) $53.20 $874.00 666 $922.20 $660.70 $1,176.50 $1,153.90 |$1,207.10 666 $922.20 $660.70 $1,176.50 $1,153.90 $1,207.10 $2,081.10 Invento August September October November December 1155 1543.5 1653.8 1732.5 1795.5 June Ju 55 1155 COG produced (labour, manufacturing, purchases) Cost of goods sold 1155 1155 1155 1370.349.01 8,231.00 8015. 77218 733.3 68345625705616.5 19575 20700 2205.0 2362.5 2475.0 2565.0 7333.3 6834.5 6 6257.0 5616.5 ventory Sales 2070.0