Page 106 10. The treasurer of Westmark Industrial, Inc., a wholesale distributor of household appliances, wants to estimate his company's cash balances for the first three months of 2018. Using the following information, construct a monthly cash budget for Westmark for January through March 2018. Westmark's sales are 20 percent for cash, with the rest on 30-day credit terms. Its purchases are all on 60-day credit terms. Does it appear from your results that the treasurer should be concerned about investing excess cash or looking for a bank loan? Westmark Industrial, Inc. Selected Information ($ thousands) 2017 (Actual) October November December January 360 420 1,200 600 510 540 1,200 300 2018 (Projected) February 240 March Sales 240 Purchases 120 120 180 210 90 Wages payable monthly Principal payment on debt due in March Interest due in March Dividend payable in March Taxes payable in February Addition to accumulated depreciation in March Cash balance on January 1, 2018 Minimum desired cash balance 300 180 30 300 150 11. 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. $6,000 3,900 2.100 1,620 90 90 300 99 $ 201 Income Statement January 1, 2017 to December 31, 2017 ($ thousands) Net sales Cost of goods sold! Gross profits Selling and administrative expenses2 Interest expense Depreciation Net profit before tax Tax (33%) Net profit after tax Balance Sheet December 31, 2017 ($ thousands) 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 4 Current portion long-term debt Taxes payable Total current liabilities Long-term debt Shareholders' equity Total liabilities and equity $ 300 960 1,800 3,060 900 150 750 $3,810 $ 0 1,740 60 210 300 2,310 990 510 $3,810 a. Use this information and the information in problem 10 to construct a pro forma income statement for the Page 107 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? 12. Based on your answer to question 11, construct a first-quarter 2018 cash flow forecast for Westmark Industrial
