Construct the quarterly pro-forma statements for 1992, quarterly. Make sure that in a separate table, you show
Question:
Construct the quarterly pro-forma statements for 1992, quarterly. Make sure that in a separate table, you show any assumptions that you have made, and in an adjacent cell, briefly justify your assumption. For example,” this assumption is stated in case” or “this rate is the average of the past 3 years” etc.
For any projection, the case information has priority. Otherwise, you can use your own justified assumption. except for the one:
Page 3: “... the loan would be reduced to $3 million by January 31, 1992.”
Ignore this statement. Instead, use the “Plug” to determine the company’s need for
short-term bank loan (notes payable) in 1992.
Be careful with the ratio computations when the data are quarterly. Adjust the data where necessary so that the resulting ratios use our normal standards of comparison. Refer to the slides that we have for annualizing ratios.
Note that the quarterly income statements in the case are cumulative within each year and that you will need to look at each quarter, not the cumulative amounts for all your calculations (e.g., You care about the third quarter, not the 9-month period ending at the end of the third quarter). You can construct the quarterly income statements for a year by using the 3-month, subtracting the 3-month from the 6-month (to get the second quarter), subtracting the 6-month from the 9- month (to get the third quarter), and subtracting the 9-month from the 12-month income
will be taken off for:
statements (to get the fourth quarter). If you do not construct these “true” quarterly income statements your quarterly calculations will all be wrong. Of course, no adjustments are necessary for the balance sheets because they are “snapshots” not “flows”.
A stock dividend is not the same thing as a cash dividend. With a stock dividend, the company gives each stockholder additional shares of stock in the company. For example, if you owned 100 shares of stock and the company gave a 10% stock dividend you would own 110 shares afterwards. There is no cash flow involved and there is no effect on the total equity of the business. It is similar (but not identical) to the effect of a stock split. Therefore, stock dividends do not appear on cash flow statements.
As a reminder, here is how to deal with changes in the goodwill for cash flow statements: Any increase in the goodwill is a sign of investment, so it goes to the CFF. Any decrease in the goodwill is a sign of depreciation, so the change will appear on CFO as a depreciation expense.
Data:
Comfort Zone | ||||||||||
Statements of Consolidated Income | ||||||||||
For Years Ended January 31 | ||||||||||
(Thousands of dollars) | 1988 | 1989 | 1990 | 1991 | ||||||
Net Sales | 45,852 | 64,335 | 85,362 | 108,255 | ||||||
Cost of Merchandise Sold | 34,626 | 48,867 | 64,632 | 83,211 | ||||||
Gross Profit on Sales | 11,226 | 15,468 | 20,730 | 25,044 | ||||||
Operating Expenses (note 1) | 7,931 | 11,065 | 14,644 | 18,658 | ||||||
Profit from Operations | 3,295 | 4,403 | 6,086 | 6,386 | ||||||
Other Income | 27 | 123 | 195 | 600 | ||||||
Interest Expense | -153 | -303 | -474 | -900 | ||||||
Income before Income Taxes | 3,169 | 4,223 | 5,807 | 6,086 | ||||||
Provision for Income Taxes | 1,168 | 1,616 | 2,474 | 2,417 | ||||||
Net Income | 2,001 | 2,607 | 3,333 | 3,669 | ||||||
Note 1: Includes | ||||||||||
Provision for doubtful accounts | N/A | N/A | N/A | 675 | ||||||
Depreciation expense | N/A | N/A | N/A | 216 | ||||||
Consolidated Balance Sheets | ||||||||||
For Years Ended January 31 | ||||||||||
(Thousands of dollars) | 1988 | 1989 | 1990 | 1991 | ||||||
Current Assets: | ||||||||||
Cash | 945 | 1,755 | 1,677 | 960 | ||||||
Accounts & notes rec. (net) | 6,015 | 8,037 | 11,754 | 16,254 | ||||||
Inventories | 11,739 | 12,975 | 20,133 | 25,008 | ||||||
Other current assets | 63 | 15 | 60 | 306 | ||||||
Total current assets | 18,762 | 22,782 | 33,624 | 42,528 | ||||||
Property, plant, & equip. (net) | 1,257 | 1,266 | 2,028 | 2,280 | ||||||
Goodwill | 543 | 507 | 1,131 | 1,062 | ||||||
Other Assets | 57 | 66 | 72 | 18 | ||||||
Total | 20,619 | 24,621 | 36,855 | 45,888 | ||||||
Current Liabilities: | ||||||||||
Notes payable to banks | 30 | 0 | 1,563 | 2,400 | ||||||
Current portion - LTD | 309 | 636 | 891 | 612 | ||||||
Trade accounts payable | 3,480 | 3,696 | 8,550 | 10,245 | ||||||
Accrued liabilities | 3,489 | 2,376 | 2,883 | 2,697 | ||||||
Total current liabilities | 7,308 | 6,708 | 13,887 | 15,954 | ||||||
Long-Term Debt | 4,080 | 3,576 | 5,157 | 8,454 | ||||||
Stockholders' Equity: | ||||||||||
Common stock - $.10 par | 150 | 165 | 333 | 333 | ||||||
Other paid-in capital | 714 | 3,198 | 3,171 | 3,171 | ||||||
Retained earnings | 8,367 | 10,974 | 14,307 | 17,976 | ||||||
Stockholders' equity | 9,231 | 14,337 | 17,811 | 21,480 | ||||||
Total | 20,619 | 24,621 | 36,855 | 45,888 | ||||||
Quarterly Statements of Consolidated Income | ||||||||||
For Years Ended January 31 | ||||||||||
(Thousands of dollars) | 3 months | 6 months | 9 months | 12 months | 3 months | 6 months | 9 months | 12 months | 3 months | 6 months |
Apr-89 | Jul-89 | Oct-89 | Jan-90 | Apr-90 | Jul-90 | Oct-90 | Jan-91 | Apr-91 | Jul-91 | |
Net Sales | 17,262 | 41,061 | 64,656 | 85,362 | 22,947 | 54,186 | 82,875 | 108,255 | 23,943 | 57,147 |
Cost of Merchandise Sold | 13,134 | 31,266 | 49,365 | 64,632 | 17,610 | 41,715 | 63,903 | 83,211 | 18,534 | 43,752 |
Gross Profit on Sales | 4,128 | 9,795 | 15,291 | 20,730 | 5,337 | 12,471 | 18,972 | 25,044 | 5,409 | 13,395 |
Operating Expenses (note 1) | 2,991 | 6,630 | 10,454 | 14,644 | 4,083 | 8,969 | 13,974 | 18,658 | 4,501 | 9,977 |
Profit from Operations | 1,137 | 3,165 | 4,837 | 6,086 | 1,254 | 3,502 | 4,998 | 6,386 | 908 | 3,418 |
Other Income | 33 | 72 | 108 | 195 | 36 | 219 | 408 | 600 | 267 | 450 |
Interest Expense | -108 | -237 | -324 | -474 | -132 | -291 | -486 | -900 | -243 | -528 |
Income before Income Taxes | 1,062 | 3,000 | 4,621 | 5,807 | 1,158 | 3,430 | 4,920 | 6,086 | 932 | 3,340 |
Provision for Income Taxes | 453 | 1,284 | 1,975 | 2,474 | 456 | 1,357 | 1,920 | 2,417 | 365 | 1,312 |
Net Income | 609 | 1,716 | 2,646 | 3,333 | 702 | 2,073 | 3,000 | 3,669 | 567 | 2,028 |
Quarterly Statements of Consolidated Income | ||||||||||
For Years Ended January 31 | ||||||||||
(Thousands of dollars) | Apr-89 | Jul-89 | Oct-89 | Jan-90 | Apr-90 | Jul-90 | Oct-90 | Jan-91 | Apr-91 | Jul-91 |
Current Assets: | ||||||||||
Cash | 1,983 | 1,488 | 1,353 | 1,677 | 2,031 | 1,794 | 1,197 | 960 | 1,692 | 1,248 |
Accounts & notes rec. | 10,356 | 12,855 | 12,798 | 12,285 | 14,256 | 17,790 | 16,908 | 16,887 | 16,815 | 20,136 |
Allow for bad debts | -474 | -690 | -903 | -531 | -729 | -939 | -1,239 | -633 | -699 | -828 |
Inventory | 18,165 | 19,104 | 18,936 | 20,133 | 25,926 | 29,319 | 26,286 | 25,008 | 31,965 | 30,396 |
Prepaid and other | 24 | 51 | 87 | 60 | 24 | 51 | 90 | 306 | 63 | 102 |
Total current assets | 30,054 | 32,808 | 32,271 | 33,624 | 41,508 | 48,015 | 43,242 | 42,528 | 49,836 | 51,054 |
Property, plant & equip. | 2,502 | 2,817 | 2,901 | 2,859 | 3,018 | 3,153 | 3,231 | 3,309 | 3,393 | 3,462 |
Accumulated depr. | -867 | -906 | -948 | -831 | -873 | -918 | -972 | -1,029 | -1,086 | -1,128 |
Net | 1,635 | 1,911 | 1,953 | 2,028 | 2,145 | 2,235 | 2,259 | 2,280 | 2,307 | 2,334 |
Goodwill | 1,185 | 1,182 | 1,149 | 1,131 | 1,116 | 1,098 | 1,080 | 1,062 | 1,044 | 1,026 |
Other Assets | 87 | 66 | 54 | 72 | 123 | 72 | 75 | 18 | 93 | 66 |
Total | 32,961 | 35,967 | 35,427 | 36,855 | 44,892 | 51,420 | 46,656 | 45,888 | 53,280 | 54,480 |
Current Liabilities: | ||||||||||
Notes payable-bank | 1,002 | 2,334 | 1,641 | 1,563 | 2,400 | 3,000 | 2,700 | 2,400 | 2,400 | 4,200 |
Trade accounts payable | 8,601 | 9,666 | 8,649 | 8,550 | 14,727 | 17,178 | 11,304 | 10,245 | 16,971 | 16,137 |
Current portion-LTD | 639 | 669 | 882 | 891 | 954 | 618 | 618 | 612 | 612 | 606 |
Accrued taxes | 897 | 582 | 912 | 1,176 | 1,383 | 852 | 771 | 690 | 939 | 495 |
Other | 1,113 | 1,023 | 1,128 | 1,707 | 1,416 | 1,110 | 1,680 | 2,007 | 1,866 | 1,359 |
Total current liab. | 12,252 | 14,274 | 13,212 | 13,887 | 20,880 | 22,758 | 17,073 | 15,954 | 22,788 | 22,797 |
Long-Term Debt | 5,628 | 5,499 | 5,091 | 5,157 | 5,499 | 8,778 | 8,772 | 8,454 | 8,445 | 8,175 |
Stockholders' Equity: | ||||||||||
Common Stock | 333 | 333 | 333 | 333 | 333 | 333 | 333 | 333 | 333 | 333 |
Paid-in capital | 3,165 | 3,171 | 3,171 | 3,171 | 3,171 | 3,171 | 3,171 | 3,171 | 3,171 | 3,171 |
Retained earnings | 11,583 | 12,690 | 13,620 | 14,307 | 15,009 | 16,380 | 17,307 | 17,976 | 18,543 | 20,004 |
Stockholders' equity | 15,081 | 16,194 | 17,124 | 17,811 | 18,513 | 19,884 | 20,811 | 21,480 | 22,047 | 23,508 |
Total | 32,961 | 35,967 | 35,427 | 36,855 | 44,892 | 51,420 | 46,656 | 45,888 | 53,280 | 54,480 |
Auditing Cases An Interactive Learning Approach
ISBN: 978-0133852103
6th edition
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt