PROBLEMS

1. Table 3.3 shows the December 31, 2009 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 $ 1.27 million in cash and short- term securities. Why are they going to the bank when they have most of the required amount in their cash account?

2. Pro forma financial statements, by definition, are predictions of a company’s financial statements at a future point in time. So why is it important to analyze the historical performance of the company before constructing pro forma financial statements?

3. Suppose you constructed a pro forma balance sheet for a company and the …show more content…
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 March 2009. No payments for remainder of year.

a. Use this information and the information in problem 8 to construct a pro forma income statement for the first quarter of 2009 and a pro forma balance sheet for March 31, 2009. What is your estimated external financing need for March 31?

b. Does the March 31, 2009, estimated external financing equal your cash surplus (deficit) for this date from your cash budget in problem 8? Should it?

c. Do your pro forma forecasts tell you more than your cash budget does about Pepperton’s financial prospects?

d. What do your pro forma income statement and balance sheet tell you about Pepperton’s need for external financing on February 28, 2009?

10. Based on your answer to question 9, construct a first- quarter 2009 cash flow forecast for Pepperton.

11. Toys- 4- Kids manufactures plastic toys.