continuing problem 10, westmark industrial's annual income statement and balance sheet for December 31, 2017, are shown next. additional information about the company's accounting methods and the treasurer's expectations for the first quarter of 2018 appear in the footnotes.
a. use this information and the information in problem 10 to construct a pro forma income statement for the first quarter of 2018 and a pro forma balance sheet for March 31, 2018. what is your estimated external financing need for March 31?
b. does the march 31, 2018 estimated external financing equal your cash surplus (deficit) for this date from your cash budget in problem 10? should it?
c. do your pro forma forecasts tell you more than your cash budget does about Westmark's financial prospects?
d. what do your pro forma income statement and balance sheet tell you about Westmark's need for external financing on february 28, 2018?
solution to problem 10:
$6,000 3,900 Income Statement January 1, 2017 to December 31, 2017 ($ thousands) Net sales Cost of goods sold? Gross profits Selling and administrative expenses Interest expense Depreciation Net profit before tax Tax (33%) Net profit after tax 2,100 1,620 90 90 300 99 $ 201 Balance Sheet December 31, 2017 ($ thousands) $ 300 960 1,800 3,060 900 150 750 $3,810 Assets Cash Accounts receivable Inventory Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Liabilities Bank loan Accounts payable Miscellaneous accruals Current portion long-term debt Taxes payable Total current liabilities Long-term debt Shareholders' equity Total liabilities and equity $ 0 1,740 60 210 300 2.310 990 510 $3,810 Cash Budget ($ thousands) $ 90 January February March Cash receipts Cash sale $ 120 $ 48 $ 48 Collection from credit sale $ 960 $ 480 $ 192 Total cash receipts $ 1,080 $ 528 $ 240 Cash disbursements Payment for purchases $ 540 $ 1,200 $ 300 Wages $ 180 $ 180 $ 180 Principal payment on debt 210 Interest $ Dividends $ 300 Tax $ 180 Total cash disbursements $ 720 $ 1,560 $ 1,080 Net cash balance $ 360 $ (1,032) $ (840) Determination of cash surplus and deficit Beginning cash balance $ 300 $ 660 $ (372) Net cash balance $ 360 $ (1,032) $ (840) Total cash balance $ 660 S (372) $ (1,212) Minimum required balance $ 150 $ 150 $ 150 cash surplus or (deficit) $ 510 $ (522) $ (1,362) $6,000 3,900 Income Statement January 1, 2017 to December 31, 2017 ($ thousands) Net sales Cost of goods sold? Gross profits Selling and administrative expenses Interest expense Depreciation Net profit before tax Tax (33%) Net profit after tax 2,100 1,620 90 90 300 99 $ 201 Balance Sheet December 31, 2017 ($ thousands) $ 300 960 1,800 3,060 900 150 750 $3,810 Assets Cash Accounts receivable Inventory Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Liabilities Bank loan Accounts payable Miscellaneous accruals Current portion long-term debt Taxes payable Total current liabilities Long-term debt Shareholders' equity Total liabilities and equity $ 0 1,740 60 210 300 2.310 990 510 $3,810 Cash Budget ($ thousands) $ 90 January February March Cash receipts Cash sale $ 120 $ 48 $ 48 Collection from credit sale $ 960 $ 480 $ 192 Total cash receipts $ 1,080 $ 528 $ 240 Cash disbursements Payment for purchases $ 540 $ 1,200 $ 300 Wages $ 180 $ 180 $ 180 Principal payment on debt 210 Interest $ Dividends $ 300 Tax $ 180 Total cash disbursements $ 720 $ 1,560 $ 1,080 Net cash balance $ 360 $ (1,032) $ (840) Determination of cash surplus and deficit Beginning cash balance $ 300 $ 660 $ (372) Net cash balance $ 360 $ (1,032) $ (840) Total cash balance $ 660 S (372) $ (1,212) Minimum required balance $ 150 $ 150 $ 150 cash surplus or (deficit) $ 510 $ (522) $ (1,362)
