# Balance Sheet and Net Sales

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Balance Sheet and Net Sales
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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 estimate for external financing required was negative. How would you interpret this result?

4. Harlin Fencing Company’s sales, half of which are for cash, over the past three months were:

August September October

\$70,000 \$120,000 \$80,000

a. Estimate Harlin’s cash receipts in October if the company’s collection period is 30 days.

b. Estimate Harlin’s cash receipts in October if the company’s collection period is 45 days.

c. What would be the October balance of Accounts Receivable for Harlin Fencing if the company’s collection period is 30 days? 45 days?

5. Suppose you constructed a pro forma balance sheet and a cash budget for a company for the same time period and the external financing required from the pro forma forecast exceeded the cash deficit estimated on the cash budget. How would you interpret this result?

6. Table 3.5 presents a computer spreadsheet for estimating R& E Sup-plies’ external financing required for 2009. The text mentions that with modifications to the equations for equity and net sales, the fore-cast can easily be extended through 2010. Write the modified equations for equity and net sales.

7. Using a computer spreadsheet, the information presented below, and the

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