Q&A Hero

Q: Which of the following items does NOT belong in a cash budget? A) rent B) taxes C) depreciation D) wages and salaries

Q: The cash budget consists of all the following factors EXCEPT A) cash receipts. B) cash disbursements. C) new financing needed. D) net income.

Q: Is it possible for the cash budget and the pro forma income statement to have different results? A) yes, because revenues and expenses included in each statement are different B) yes, because revenues and expenses are accounted for over different time periods C) no, because they contain the same variables, while just using different formats D) no, because the cash budget and the pro forma income statement provide forecasts for the same time period

Q: Which of the following would NOT be found in a cash budget? A) interest expense B) taxes C) depreciation D) cash sales

Q: LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.Jan.$300,000April$350,000Feb.$350,000May$500,000Mar.$475,000June$400,00020% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected cash balance as of April 1, 2010?A) ($48,600)B) ($58,036)C) $14,238D) $21,400

Q: LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.Jan.$300,000April$350,000Feb.$350,000May$500,000Mar.$475,000June$400,00020% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected cumulative borrowing as of March 1, 2010?A) $110,000B) $90,000C) $70,000D) -0-

Q: LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.Jan.$300,000April$350,000Feb.$350,000May$500,000Mar.$475,000June$400,00020% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected total receipts (collections) for March?A) $357,500B) $310,000C) $456,000D) $475,000

Q: LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.Jan.$300,000April$350,000Feb.$350,000May$500,000Mar.$475,000June$400,00020% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected gross profit for April?A) ($50,000)B) $70,000C) $100,000D) $110,550

Q: LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.Jan.$300,000April$350,000Feb.$350,000May$500,000Mar.$475,000June$400,00020% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected total disbursements for April?A) $422,918B) $435,686C) $398,833D) $375,655

Q: Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:Jan.$50,000April$180,000Feb.$60,000May$240,000Mar.$100,000June$240,000Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2012 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2012. Assume that the interest rate on short-term borrowing is 1% per month. How much short term financing is needed by March 30, 2012?A) $110,000B) $15,000C) $70,000D) $85,000

Q: Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:Jan.$50,000April$180,000Feb.$60,000May$240,000Mar.$100,000June$240,000Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2012 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). The firm has no short-term borrowing as of March 1st, 2012. Assume that the interest rate on short-term borrowing is 1% per month. What was Rawhides' projected loss for March?A) $184,000B) $110,000C) $84,000D) none of the above

Q: Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 to be as follows:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,000Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2010 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2010. Assume that the interest rate on short-term borrowing is 1% per month. What is Fielding's projected total receipts (collections) for April?A) $124,000B) $180,000C) -$4,000D) $36,000

Q: Plato Industries' projected sales for the first six months of 2012 are given below:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,00020% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. Plato's projected cumulative short-term borrowing as of April 30, 2012?A) $25,000B) $33,000C) $50,000D) $60,000

Q: Plato Industries' projected sales for the first six months of 2012 are given below:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,00020% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. What is Plato Industries' ending cash balance (before borrowing) in March?A) $12,000B) $8,000C) $3,000D) ($28,000)

Q: Plato Industries' projected sales for the first six months of 2012 are given below:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,00020% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. What is Plato Industries' total disbursement in May?A) $367,500B) $348,000C) $425,500D) $324,000

Q: Plato Industries' projected sales for the first six months of 2012 are given below:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,00020% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. What is Plato Industries' total cash receipts for April 2012?A) $340,000B) $326,000C) $302,000D) $300,000

Q: A company collects 25% of its sales during the month of sale, 65% one month after the sale, and 10% two months after the sale. The company expects sales of $50,000 in August, $80,000 in September, $90,000 in October, and $60,000 in November. How much money is expected to be collected in October? A) $90,000 B) $79,500 C) $55,000 D) $22,500

Q: Which of the following is always a non-cash expense? A) income taxes B) salaries C) depreciation D) none of the above

Q: The primary purpose of a cash budget is to A) determine the level of investment in current and fixed assets. B) determine financing needs. C) provide a detailed plan of future cash flows. D) determine the estimated income tax for the year.

Q: All of the following are found in the cash budget EXCEPT A) a net change in cash for the period. B) accounts receivable. C) cash disbursements. D) new financing needed.

Q: A firm's cash position would most likely be hurt by A) decreasing excess inventory. B) establishing stricter (shorter) credit terms. C) retiring outstanding debt. D) increasing the net profit margin.

Q: A firm's cash position would most likely be helped by A) delaying payment of accounts payable. B) more liberal credit policies for their customers. C) purchasing land for investment purposes. D) holding larger inventories.

Q: CraftCo, Inc.'s projected sales for the first six months of 2012 are given below:Jan.$500,000April$490,000Feb.$740,000May$740,000Mar.$380,000June$610,00040% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.'s earnings before interest and taxes for April 2012?A) $156,000B) $142,000C) $133,000D) $ 93,000

Q: CraftCo, Inc.'s projected sales for the first six months of 2012 are given below:Jan.$500,000April$490,000Feb.$740,000May$740,000Mar.$380,000June$610,00040% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012 Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.'s total cash disbursements for April 2012?A) $294,000B) $334,000C) $374,000D) $414,000

Q: CraftCo, Inc.'s projected sales for the first six months of 2012 are given below: Jan. $500,000 April $490,000 Feb. $740,000 May $740,000 Mar. $380,000 June $610,000 40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.'s total cash receipts for April 2010? A) $460,000 B) $490,000 C) $524,000 D) $560,000

Q: Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement? A) If net income is positive for 3 or more months in a row, then cash flow must be positive. B) If net income is positive, then cash flow must be positive. C) If net income is positive, then cash flow could be positive or negative, but if net income is negative, cash flow must also be negative. D) Cash flow could be positive whether net income is positive or negative.

Q: Plimpton Sales presents income statements for the first three months of this year. Revenues are $1,000,000 in January, $1,200,000 in February, and $1,400,000 in March, while expenses total $800,000 in January, $900,000 February, and $1,000,000 in March. Despite the positive net income, the controller believes Plimpton Sales needs to arrange short-term financing of $300,000 to make payroll the next month. Which of the following statements is MOST correct? A) The controller must have made a mistake since the company's net income for the three months is $900,000. B) The company's accounts receivable balance has decreased over the past three months. C) The company's accounts payable balance has increased over the past three months. D) The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months.

Q: ABC Corporation began operations on January 1st of this year with a cash balance of $250,000. ABC had sales of $200,000 for the month of January, all on credit. ABC allows its customers 30 days to pay. ABC's expenses for January equal $150,000, and ABC's ending balance in accounts payable at January 31st is $50,000. In its cash budget for January, ABC's ending cash balance should be equal to A) $300,000 because of GAAP accrual accounting rules. B) $150,000. C) $200,000. D) $100,000.

Q: Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales January $50,000 $50,000 February $70,000 $110,000 March $55,000 $95,000 April $78,000 $130,000 May $80,000 $105,000 June $75,000 $148,000 What are Matterhorn's total cash receipts for the month of June? A) $120,400 B) $147,000 C) $195,400 D) $213,000

Q: Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales January $50,000 $50,000 February $70,000 $110,000 March $55,000 $95,000 April $78,000 $130,000 May $80,000 $105,000 June $75,000 $148,000 What are Matterhorn's total cash receipts for the month of May? A) $185,000 B) $199,000 C) $119,000 D) $176,000

Q: Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales January $50,000 $50,000 February $70,000 $110,000 March $55,000 $95,000 April $78,000 $130,000 May $80,000 $105,000 June $75,000 $148,000 What are Matterhorn's total cash receipts for the month of April? A) $208,000 B) $176,000 C) $168,000 D) $98,000

Q: Matterhorn, Inc. had the following sales for the past six months. Matterhorn collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales January $50,000 $50,000 February $70,000 $110,000 March $55,000 $95,000 April $78,000 $130,000 May $80,000 $105,000 June $75,000 $148,000 What are Matterhorn's total cash receipts for the month of March? A) $99,500 B) $119,000 C) $150,000 D) $154,500

Q: The cash budget can be used to provide an estimate of the firm's future financing needs.

Q: The cash budget represents a detailed plan of future cash flows.

Q: A budget is a forecast of future events.

Q: Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

Q: The cash budget is composed of four elements: cash receipts, cash disbursements, depreciation, and the net change in cash for the period.

Q: The annual cash budget not only shows the amount of financing needed for the year, but also when the funds will be needed.

Q: Cash budgets are completed only on an annual basis because shorter periods of time are too variable and uncertain for meaningful results.

Q: The percent of sales method provides a general estimate, but the more detailed cash budget will ultimately be used to estimate financing needs.

Q: Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.

Q: The percent of sales method provides a more detailed plan for future financing needs than the cash budget because both pro forma income statements and balance sheets are used in the analysis.

Q: Budgets should not be used for performance evaluation because there is too much uncertainty involved and this makes it unfair to the person being evaluated.

Q: Under what circumstances does a firm violate the basic relationship underlying the percent of sales forecast method?

Q: The term "lumpy asset" means A) the same thing as assets that exhibit scale economies. B) assets that can be purchased in incremental units. C) assets that have economies of scale but not economies of scope. D) assets that must be purchased in discrete quantities.

Q: The accuracy of the percent of sales forecast method is impaired if A) scale economies are present for assets. B) assets must be purchased in discrete quantities. C) asset needs are independent of sales level. D) All of the above impair the accuracy of the percent of sales forecast method.

Q: The percent of sales method does not accurately estimate the balances for lumpy assets. Which of the following statements best describes the possible errors? A) If excess capacity exists, the percent of sales method will overestimate asset requirements. B) The percent of sales method consistently underestimates the forecasted balances of lumpy assets. C) The percent of sales method consistently overestimates the forecasted balances of lumpy assets. D) If fixed assets are utilized at full capacity currently, the percent of sales method will underestimate the forecasted fixed asset balance.

Q: MDX Sales Corp. is expecting a 10% increase in sales next year. MDX has an inventory balance of $1,000,000 and uses the percent of sales forecasting method. Which of the following could explain why the inventory forecast of $1,100,000 might be too high? A) The current inventory balance of $1,000,000 is lower than usual because of a one-time end of year fire sale. B) The company is going to change its depreciation method in the coming year. C) The growth in sales could be as high as 15%. D) A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales.

Q: Southeast Wood Products, Inc. reports sales of $20,000,000 and inventory of $4,000,000. Southeast's inventory possesses significant economies of scale. Therefore, if the firm's sales increase by 10%, Southeast's inventory will ________ and if Southeast's sales decrease by 10%, Southeast's inventory will ________. A) increase by more than 10%; increase by more than 10% B) decrease by more than 10%; decrease by more than 10% C) increase by more than 10%; decrease by less than 10% D) increase by less than 10%; decrease by less than 10%

Q: AFB, Inc. is expecting sales to increase by 20% next year, but its net fixed assets are expected to remain at their current level. This is an example of A) economies of scale. B) lumpy assets. C) spontaneous financing. D) discretionary financing.

Q: If a firm currently has excess capacity, then using the percent of sales method to forecast its fixed asset balance will likely result in an overestimate of the fixed asset balance and an inflated amount of discretionary financing needed.

Q: When economies of scale exist, the percent of sales method will overestimate the assets required and therefore overestimate the amount of discretionary financing needed.

Q: What are some examples of spontaneous and discretionary sources of financing?

Q: What is the percent of sales method of financial forecasting?

Q: Amalgamated Enterprises is planning to purchase some new equipment. With this new equipment, the company expects sales to increase from $8,000,000 to $10,000,000. A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue. The company knows that its current assets, fixed assets, accounts payable, and accrued expenses increase directly with sales. The company's net profit margin on sales is 8 percent, and the company plans to pay 40 percent of its after-tax earnings in dividends. A copy of the company's current balance sheet is given below.Amalgamated Enterprises Balance SheetCurrent assets$3,000,000Fixed assets12,000,000Total assets$15,000,000Accounts payable$4,000,000Accrued expenses1,000,000Long-term debt3,000,000Common stock2,000,000Retained earnings5,000,000Total liabilities and net worth$15,000,000Prepare a pro forma balance sheet for Amalgamated for next year.

Q: The ZYX Corporation is planning to request a line of credit from its bank and wants to estimate its cash needs for the month of September. The following sales forecasts have been made for 2010:July $500,000August 400,000September 300,000October 200,000November 100,000Collection estimates were obtained from the credit collection department as follows: 20% collected within the month of sale; 70% collected the first month following this sale; and 10% collected the second month following the sale. Payments for labor and raw materials are typically made in the month in which these costs are incurred. Total labor and raw material costs each month are 50% of sales. General administrative expenses are $30,000 per month, lease payments are $10,000 per month, and depreciation charges are $20,000 per month. The corporation tax rate is 40%; however, no corporate taxes are paid in September. Prepare a pro forma income statement and cash budget for September.

Q: The balance sheet for the Long Drive Golf Company on September 30, 2010 is presented below:Long Drive Golf Company Balance SheetSeptember 30, 2010Cash$528,000Accounts payable$1,568,000Accounts receivable1,216,000Notes payable752,000Inventory2,400,000Total current liabilities2,320,000Fixed assets5,632,000Long-term debt2,336,000Common stock3,200,000Total assets$9,776,000Retained earnings1,920,000Total liabilities and stockholders' equity$9,776,000The treasurer of the firm wants to issue $1,200,000 in long-term bonds to be used as follows:1. $240,000 to reduce accounts payable2. $192,000 to retire notes payable3. $128,000 to increase cash on hand4. $640,000 to increase inventoriesa. Assuming that the loan is obtained, construct a pro forma balance sheet for December 31, 2010, for Long Drive Golf Company that reflects the use of the funds provided.b. Was the liquidity of Long Drive Golf Company improved by the loan?

Q: The cash budget for Parker Processed Meats, Inc. is given below for the fourth quarter of 2010:Parker Processed Meats, Inc.Cash Budget for the Three Months Ending December 31, 2010Cash receiptsOct.Nov.Dec.Total collections$37,050$48,075$69,750Cash disbursements:Purchases$45,780$50,800$54,250Wages and salaries$8,500$8,500$8,500Other expenses$4,025$2,350$975Taxes$16,350Total disbursements$54,000$57,375$78,165The expected sales for the period are as follows:Oct.: $116,000 Nov.: $127,000 Dec.: $95,000The total depreciation expense for the period will be $12,000.An interest payment on outstanding debt of $13,000 will be made in December. Using the information given above, construct a pro forma income statement for the final quarter of 2010.

Q: The balance sheet of the Emery Company is presented below:Emery Company Balance SheetMarch 31, 2010(Millions of Dollars)Current assets$18Accounts payable$9Fixed assets38Notes payable0Total$56Long-term debt15Common equity32Total$56For the year ending March 31, 2010, Jackson had sales of $58 million. The common stockholders receive all net earnings of the firm in the form of cash dividends, leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets).Construct a pro forma balance sheet for March 31, 2011 for an expected level of sales of $75.4 million. Assume current assets and accounts payable vary as a percent of sales, and fixed assets remain at the present level. Use notes payable as discretionary financing.

Q: Lindsey Insurance Co. has current sales of $10 million and predicts next year's sales will grow to $14 million. Current assets are $3 million and fixed assets are $4 million. The firm's net profit margin is 7 percent after taxes. Presently, Lindsey has $900,000 in accounts payable, $1.1 million in long-term debt, and $5 million (including $2.5 million in retained earnings) in common equity. Next year, Lindsey projects that current assets will rise in direct proportion to the forecasted sales, and that fixed assets will rise by $500,000. Lindsey also plans to pay dividends of $400,000 to common shareholders. a. What are Lindsey's total financing needs for the upcoming year? b. Given the above information, what are Lindsey's discretionary financing needs?

Q: Using the 2012 financial statements for DRE Corporation and this additional information, prepare a pro forma income statement and balance sheet for the year 2013. Determine the discretionary financing needed (DFN) and assume that if the DFN is positive, the company will increase long-term debt, and if DFN is negative, the company will pay back some long-term debt.Sales for next year (2013) are expected to increase by $300,000 to $1,800,000. The firm is running efficiently and at full capacity so that all assets and spontaneous liabilities are expected to increase proportionally with sales. The dividend payout ratio for 2013 will be 40%.DRE Corporation2012 Financial StatementsIncome Statement ($)Sales1,500,000Net Income250,000Balance Sheet ($)Cash400,000Accounts Receivable450,000Inventory350,000Property, Plant, & Equipment650,000Total Assets1,850,000Accounts Payable200,000Short Term Notes Payable250,000Long-term Debt550,000Common Stock200,000Retained Earnings650,000Total Liabilities and Equity1,850,000

Q: What is the primary tool for short-term financial forecasting? A) pro forma income statement B) pro forma balance sheet C) pro forma cash budget D) capital budgeting

Q: Plato Industries' projected sales for the first six months of 2012 are given below:Jan.$250,000April$300,000Feb.$340,000May$350,000Mar.$280,000June$380,00020% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. Plato's projected EBIT for March 2012?A) $42,000B) $23,000C) ($28,000)D) ($60,000)

Q: CraftCo, Inc.'s projected sales for the first six months of 2012 are given below:Jan.$500,000April$490,000Feb.$740,000May$740,000Mar.$380,000June$610,00040% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $40,000/month. The company's cash balance as of February 28, 2012 will be $25,000. Excess cash will be used to retire short-term borrowing (if any). CraftCo, Inc. has no short term borrowing as of February 28, 2012. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $15,000 at the beginning of each month. What is CraftCo, Inc.'s projected cash balance at the end of March 2012?A) $301,000B) $329,000C) $352,000D) $361,000

Q: Predicting a firm's future financial needs includes all of the following steps EXCEPT A) review of the firm's sales revenues and expenses over all past planning periods. B) estimation of investment levels for current and fixed assets. C) determination of the firm's financing needs for the period. D) estimation of projected sales and expenses.

Q: All of the following are examples of sources of discretionary financing EXCEPT A) bank loans. B) notes payable. C) trade credit. D) common stock.

Q: At a minimum, the sales forecast for the coming year would reflect A) any future trend in sales that is expected to begin in the new year. B) the influence of any anticipated events that might materially affect the sales trend. C) Both of the above are correct. D) Neither of the above is correct.

Q: Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements? A) A firm's investment in accounts receivable is seldom related to sales volume. B) Not all assets and liabilities increase or decrease as a constant percent of sales. C) Inventory levels are seldom affected by changes in sales volume. D) The dividend payout ratio may change from one year to the next.

Q: What differentiates "discretionary financing needs" from "external financing needs"? A) assets B) retained earnings C) sales D) spontaneous liabilities

Q: Spontaneous sources of funds refers to all of the below EXCEPT A) accruals. B) a bank loan. C) accounts payable. D) common stock.

Q: Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's cost of goods sold. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. What is the projection for next year's cost of goods sold? A) $20,481,000 B) $21,138,900 C) $21,459,200 D) $22,786,400

Q: Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts payable. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. The firm's investment in accounts payable in the current year is $2,218,500. What is the projection for next year's accounts payable? A) $2,127,000 B) $3,781,750 C) $2,884,050 D) $4,184,000

Q: Discretionary financing needs will be higher if ________. Assume "all else equal." A) the firm's net profit margin increases B) sales decline C) the dividend payout ratio is raised D) excess capacity exists for fixed assets

Q: Discretionary financing needs will be lower if ________. Assume "all else equal." A) the dividend payout ratio is raised B) the firm's net profit margin increases C) sales increase D) fixed assets are currently at full capacity

Q: Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. The firm's investment in inventory in the current year is $5,890,200. What is the projection for next year's inventory? A) $7,657,260 B) $6,981,250 C) $5,845,500 D) $4,526,600

Q: Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable. Make the following assumptions: current year's sales are $45,450,000; current year's cost of goods sold is $26,950,000; sales are expected to rise by 20%. The firm's investment in accounts receivable in the current year is $8,600,000. The firm's marginal tax rate is 35%. What is the projection for next year's accounts receivable? A) $11,345,000 B) $10,320,000 C) $9,575,000 D) $8,772,000

Q: The "percent of sales method" is a method of preparing pro forma financial statements. All of the following would be examples of how the "percent of sales method" is developed EXCEPT: A) Forecast expenses by applying a percent of projected sales, using last year's expenses as a percent of last year's sales. B) Forecast assets by applying a percent of projected sales, using current year's assets as a percent of current year's sales. C) Approximate liabilities by applying a percent of projected sales, using the last five-year average of liabilities as a percent of sales. D) Forecast retained earnings by applying a percent of projected sales, using current year's retained earnings as a percent of current year's sales.

Q: Which of the following is the initial and most important step in the preparation of pro forma financial statements? A) Estimate the levels of investment in current and fixed assets. B) Determine the rate of interest that will be required for borrowed funds. C) Project the firm's sales revenues for the planning period. D) Approximate the cost of raw materials.

Q: Which of the following statements would NOT be a valid use of pro forma financial statements? A) to determine a firm's needs for financing B) to enhance a firm's ability to offer shareholders guaranteed operating results C) to analyze the effects of a firm's forecasts on its financial performance D) to serve as a benchmark when comparing actual results to planned activities

Q: All of the following are useful purposes of pro forma financial statements EXCEPT A) they provide a useful tool for analyzing the effects of a firm's forecasts on its financial performance. B) they satisfy the SEC requirement for audited financial disclosure. C) they can be used to control, or monitor a firm's progress for a planning period. D) they serve as a benchmark to compare actual results to planned activities.