Continuing problem 10, Westmark Industrials annual income statement and balance sheet for December 31, 2017, are shown
Question:
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.
Income Statement
January 1, 2017 to December 31, 2017 ($ thousands)
Net sales ............................................................... $6,000
Cost of goods sold1 ........................................... 3,900
Gross profits ........................................................ 2,100
Selling and administrative expenses2 .............. 1,620
Interest expense ................................................. 90
Depreciation3 ........................................................ 90
Net profit before tax ............................................ 300
Tax (33%) ............................................................... 99
Net profit after tax $ ........................................... 201
Balance Sheet
December 31, 2017 ($ thousands)
Assets
Cash ...................................................................... $ 300
Accounts receivable ............................................ 960
Inventory ............................................................. 1,800
Total current assets ........................................ 3,060
Gross fixed assets ............................................. 900
Accumulated depreciation ............................ 150
Net fixed assets ................................................. 750
Total assets ..................................................... $3,810
Liabilities
Bank loan ........................................................... $ 0
Accounts payable .............................................. 1,740
Miscellaneous accruals4 ................................... 60
Current portion long-term debt5 ..................... 210
Taxes payable ..................................................... 300
Total current liabilities ....................................... 2,310
Long-term debt ................................................... 990
Shareholders’ equity .......................................... 510
Total liabilities and equity ................................. $3,810
1 Cost of goods sold consists entirely of items purchased in first quarter.
2 Selling and administrative expenses consist entirely of wages.
3 Depreciation is at the rate of $30,000 per quarter.
4 Miscellaneous accruals are not expected to change in the first quarter.
5 $210 due in March 2018. No payments for remainder of year.
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?
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