Toys-4-Kids manufactures plastic toys. Sales and production are highly seasonal. The following list of figures is a quarterly pro forma forecast indicating external financing needs for 2012. Assumptions are in parentheses.

a. How do you interpret the negative numbers for income taxes in the first two quarters?
b. Why are cash balances in the first two quarters greater than the minimum required $200,000? How were these numbers determined?
c. How was "external financing required" appearing at the bottom of the forecast determined?
d. Do you think Toys-4-Kids will be able to borrow the external financing required as indicated by the forecast?

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Toys-4-Kids 2012 Quarterly Pro Forma Forecast $ thousands) Qt 1 at2 at3 Otr 4 Net sales Cost of sales (70% of sales) Gross profit Operating expenses Profit before tax Income taxes Profit after tax $ 300 S 375 $3,200 $5,000 210 263 2,240 3,500 90 113 960 500 560 560 (470) 448 400 940 (188) 179) 160 376 S 282) (S 269) S 240 S 564 560 560 Cash (minimum balance $200,000) Accounts receivable (75% of quarterly sales) Inventory (12/31/11 balance $500,000) Current assets Net plant & equipment Total assets Accounts payable (10% of quarterly sales) Accrued taxes (payments quarterly in arrears) Current liabilities Long-term debt Equity (12/31/11 balance $3,000,000) Total liabilities and equity External financing required S1,235 S 927 S 200 S 200 225 281 2,400 3,750 500 500 1,960 1,990 3,120 4,450 1,000 1,000 1,000 ,000 $2,960 $2,708 SA,100 $5,450 320 500 (188) 179) 160 376 (158) 142 480 876 00 400 2,718 2,450 2,690 3,254 S2,960 $2,708 $3,570 $4,530 $ 0 S 0 S 530 S 920 500 500 30 38 400 400