Table 3.3 shows the December 31, 2018 pro forma balance sheet and income statements for R&E Supplies, Inc. The pro-forma balance sheet shows that R&E Supplies will need external funding from the bank of $1.4 million. However, they show almost $1.3 million in cash and short term securities. Why are they talking to the bank for such a large amount when they have most of this sum in their cash account?

Table 3.3

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Income Statement 2018 Comments Net sales $25,766 25% increase Cost of goods sold Gross profit Expenses: General, selling, and administrative expenses Net interest expense Earnings before tax 86% of sales 22,159 3,607 3,092 12% of sales 90 Initially constant 425 Тах 191 45% tax rate Earnings after tax $ 234 Balance Sheet Assets Current assets: Cash and securities $ 1,271 18 days sales 51-day collection period 9 times turnover Accounts receivable 3,600 Inventories 2,462 Prepaid expenses 20 Rough estimate Total current assets 7,353 Net fixed assets 280 See text discussion Total assets $ 7,633 Llabilitles and Owners' Equity Current liabilities: Bank loan $ 0 Accounts payable Current portion of long-term debt Accrued wages 59-day payables period See text discussion 3,582 100 22 Rough estimate Total current liabilities 3,704 Long-term debt 660 Common stock 150 Retained earnings 1,697 See text discussion $ 6,211 $ 1,422 Total liabilities and owners' equity External funding required