Table A

Table A: Condensed Income Statements, 1991-1993 (thousands of dollars)

1991

Net sales
Cost of goods sold
Gross profit
Operating expenses
Interest expense
Interest income
Profit before taxes
Federal income taxes
Net profit

$5,213
3,597
$1,616
1,199
68
20
$369
125
$244

1992

$6,167
4,440
$1,727
1,542
75
15
$125
43
$82

Page 1

1993

$7,967
5,577
$2,390
1,912
85
16
$409
139
$270

Table B

Table B: Balance Sheet at December 31, 1993 (thousands of dollars)

Cash
Accounts receivable
Inventory
Current assets
Plant and equipment, net
Total assets

$200
2,905
586
$3,691
1,176
$4,867

Accounts payable
Notes payable, bank
Accrued taxes(a)
Long-term debt, current portion
Current liabilities
Long-term debt
Shareholders' equity
Total liabilities and
shareholders' equity

$282
752
88
50
$1,172
400
3,295
$4,867

(a)The company was required to make estimated tax payments on the 15th of April, June, September,
and December. In 1993 it elected to base its estimated tax payments on the previous year's tax. The
balance of $88,000 was due on March 15, 1994.

Page 2

Table B

, June, September,
ous year's tax. The

Page 3

Table C

Table C: Monthly Sales Data (thousands of dollars)

Sales
1993 Actual
1994 Projected

Total
$7,967
$10,000

Jan
$64
$120

Page 4

Feb
88
140

Mar
96
160

Apr
88
140

Table C

May
87
140

Jun
95
140

Jul
96
160

Aug
1,251
1,620

Page 5

Sep
1,474
1,840

Oct
1,723
2,140

Table C

Nov
1,965
2,285

Dec
940
1,115

Page 6

Exhibit 1

Exhibit 1

Pro Forma Balance Sheets Under Seasonal Production, 1994 (thousands of dol

Note

Cash
Accounts receivable
Inventory
Current assets
Net plant and
equipment

(a)
(b)
(c)

(d)

Total assets
Accounts payable
(e)
Notes payable, bank
(f)
Accrued taxes
(g)
Long-term debt, current portion
Current liabilities
Long-term debt
Shareholders' equity

(h)

Total liabilities
and equity

Actual
Dec. 31,
1993

Jan.

Feb.

Mar.

$200
2,905
586

$878
1,060
586

$1,526
260
586

$1,253
300
586

$3,691

$2,524

$2,372

$2,139

1,176

1,176

1,176

1,176

$4,867

$3,700

$3,548

$3,315

$282
752
88
50

$36
0
31
50

$1,172
400
3,295

$117
400
3,183

$69
400
3,079

$4,867

$3,700

$3,548

$42
0
(23)
50

$48
0
(162)
50
($64)
400
2,979

$3,315

Notes:
(a)Assumed maintenance of minimum $200,000 balance; includes excess cash in months when company is
(b)Assumed 60-day collection period.
(c)Assumed inventories maintained at December 31, 1993 level for all of 1994.
(d)Assumed equipment purchases equal to depreciation expense.

(e)Assumed equal to 30% of the current month's sales and related to material purchases of $3,000,000 for 1
This represents a 30-day payment period. Since inventories are level, purchases will follow seasonal produc
(f)Plug figure.

(g)Taxes payable on 1993 income are due on March 15, 1994. On April 15, June 15, September 15, and Dec
each of the estimated tax for 1994 are due. In estimating its tax liability for 1994, the company has the opt
($139,000) for its estimate and making any adjusting tax payments in 1995. Alternatively, the company co
Toy World planned to use its prior year's tax liability as its estimate and to pay $35,000 in April, June, Septem
(h)To be repaid at the rate of $25,000 each June and December.

Page 7

Exhibit 1

, 1994 (thousands of dollars)

Apr.

May

June

July

Aug.

Sept.

$1,054
300
586

$915
280
586

$696
280
586

$527
300
586

$200
1,780
586

$200
3,460
586

$1,940

$1,781

$1,562

$1,413

$2,566

$4,246

1,176

1,176

1,176

1,176

1,176

1,176

$3,116

$2,957

$2,738

$2,589

$3,742

$5,422

$42
0
(251)
50

$42
0
(305)
50

$42
0
(394)
50

$48
0
(448)
50

($159)
400
2,875

($213)
400
2,770

($302)
375
2,665

($350)
375
2,564

$3,116

$2,957

$2,738

$2,589

onths when company is out of debt.

hases of $3,000,000 for 1994 as against sales of $10 million.

ll follow seasonal production

September 15, and December 15, 1994, payments of 25%

he company has the option of using the prior year's tax liability
atively, the company could estimate its 1994 tax liability directly.
000 in April, June, September, and December.

Page 8

$486
433
(352)
50

$552
1,741
(271)
50

$617
375
2,750

$2,072
375
2,975

$3,742

$5,422

Exhibit 1

Oct.

Nov.

Dec.

$200
3,980
586

$200
4,425
586

$200
3,400
586

$4,766

$5,211

$4,186

1,176

1,176

1,176

$5,942

$6,387

$5,362

$686
1,677
33
50

$334
942
40
50

$2,311
375
3,256

$2,446
375
3,566

$1,366
350
3,646

$5,942

$6,387

$5,362

$642
1,745
(126)
50

Page 9

Exhibit 2

Exhibit 2

Pro Forma Income Statement Under Seasonal Production, 1994 (thousands of dollars)

Jan.

Net sales
Cost of goods sold(a)

Feb.

Mar.

Apr.

$120
84

$140
98

$160
112

$140
98

Gross profit

$36

$42

$48

$42

Operating expenses(b)
Interest expense
Interest income(c)

200
7
2

200
4
4

200
4
5

200
4
4

Profit (loss) before taxes

Income taxes(d)

($169)
(57)

($158)
(54)

($151)
(51)

($158)
(54)

Net Profit

($112)

($104)

($100)

($104)

(a)Assumed cost of goods sold equal to 70% sales.

(b)Assumed to be same for each month throughout the year.
(c)Toy World expected to earn a 4% annualized rate of return on average monthly cash balances.

(d)Negative figures are tax credits from operating losses, and reduced accrued taxes shown on balance shee

Page 10

Exhibit 2

94 (thousands of dollars)

May

June

July

Aug.

Sept.

Oct.

$140
98

$140
98

$160
112

$1,620
1,134

$1,840
1,288

$2,140
1,498

$42

$42

$48

$486

$552

$642

200
4
3

200
4
3

200
3
2

200
5
1

200
12
1

200
17
1

($159)
(54)

($159)
(54)

($153)
(52)

$282
96

$341
116

$426
145

($105)

($105)

($101)

$186

$225

$281

onthly cash balances.

ued taxes shown on balance sheet. The federal tax rate on all earnings was 34%.

Page 11

Exhibit 2

Nov.

Dec.

Total

$2,285
1,600

$1,115
780

$10,000
7,000

$685

$335

$3,000

200
17
1

200
14
1

2,400
95
28

$469
159

$122
42

$533
182

$310

$80

$351

Page 12

Toy World, Inc.

Net Savings from Level Production

Net Profit (level production)

Net Profit (seasonal production)
Net savings from shift to level production

Jan.
Feb.
Mar.
-$116.50 -$107.56 -$102.68
-112 -$104.00 -$100.00
-$4.50
-$3.56
-$2.68

Apr.
May
June
July
-$108.74 -$111.97 -$114.94 -$113.49
-$104.00 -$105.00 -$105.00 -$101.00
-$4.74
-$6.97
-$9.94
-$12.49

Aug.
$219.69
$186.00
$33.69

Sept.
$267.22
$225.00
$42.22

Oct.
$333.08
$281.00
$52.08

Nov.
$370.61
$310.00
$60.61

Dec.
$106.37
$80.00
$26.37

Total
521.0873
$351.00
$170.09

Toy World, Inc.

Pro Forma Balance Sheets Under Level Production, 1994
(thousand of dollars)

Jan.

Feb.

Mar.

Cash
Accounts receivable
Inventory
Current assets
Net plant and equipment
Total assets

$620.11
$1,060.00
$1,050.38
$2,730.49
$1,176.00
$3,906.49

$805.78
$260.00
$1,501.74
$2,567.52
$1,176.00
$3,743.52

$200.00
$300.00
$1,940.08
$2,440.08
$1,176.00
$3,616.08

Accounts payable
Notes payable, bank
Accrued taxes
Long-term debt, current portion
Current liabilities
Long-term debt
Shareholders' equity
Total liabilities and equity
check

$250.00
$0.00
$27.99
$50.00
$327.99
$400.00
$3,178.50
$3,906.49
$0.00

$250.00
$0.00
-$27.42
$50.00
$272.58
$400.00
$3,070.94
$3,743.52
$0.00

$250.00
$116.14
-$168.32
$50.00
$247.82
$400.00
$2,968.26
$3,616.08
$0.00

Notes:
Accounts receivable - Sales of the last two months
Net plant and equipment - Equal to depreciation expense
Accounts payable - 30% of sales ($3,000,000/12) = $250,000 p
Notes payable - Balancing figure
Long-term debt (current portion) - $50
Long-term debt - $400 as of December 1993, with $25 being pa
Shareholders' equity - Beginning equity + net income (loss) per

Apr.

May

June

July

Aug.

Sept.

$200.00
$300.00
$2,391.44
$2,891.44
$1,176.00
$4,067.44

$200.00
$280.00
$2,842.80
$3,322.80
$1,176.00
$4,498.80

$200.00
$280.00
$3,294.16
$3,774.16
$1,176.00
$4,950.16

$200.00
$300.00
$3,732.50
$4,232.50
$1,176.00
$5,408.50

$200.00
$1,780.00
$3,220.38
$5,200.38
$1,176.00
$6,376.38

$200.00
$3,460.00
$2,565.04
$6,225.04
$1,176.00
$7,401.04

$250.00
$767.26
-$259.34
$50.00
$807.92
$400.00
$2,859.52
$4,067.44
$0.00

$250.00
$1,368.27
-$317.02
$50.00
$1,351.25
$400.00
$2,747.55
$4,498.80
$0.00

$250.00
$2,053.79
-$411.23
$50.00
$1,942.56
$375.00
$2,632.61
$4,950.16
$0.00

$250.00
$2,684.08
-$469.70
$50.00
$2,514.38
$375.00
$2,519.12
$5,408.50
$0.00

$250.00
$3,319.10
-$356.52
$50.00
$3,262.58
$375.00
$2,738.80
$6,376.38
$0.00

$250.00
$3,973.88
-$253.87
$50.00
$4,020.01
$375.00
$3,006.02
$7,401.04
$0.00

e last two months

to depreciation expense
($3,000,000/12) = $250,000 per month

ember 1993, with $25 being paid off every June and December
equity + net income (loss) per month

Oct.

Nov.

Dec.

$200.00
$3,980.00
$1,714.40
$5,894.40
$1,176.00
$7,070.40

$200.00
$4,425.00
$769.37
$5,394.37
$1,176.00
$6,570.37

$200.00
$3,400.00
$586.00
$4,186.00
$1,176.00
$5,362.00

$250.00
$3,138.58
-$82.28
$50.00
$3,356.30
$375.00
$3,339.10
$7,070.40
$0.00

$250.00
$2,077.01
$108.64
$50.00
$2,485.65
$375.00
$3,709.72
$6,570.37
$0.00

$250.00
$767.47
$128.44
$50.00
$1,195.91
$350.00
$3,816.09
$5,362.00
$0.00

Toy World, Inc.

Pro Forma Income Statement Under Level Production, 1994
(thousands of dollars)

Net sales
Cost of goods sold
Gross profit
Operating expenses
Interest expense
Interest income
Profit (loss) before taxes
Income taxes
Net Profit

Jan.

Feb.

Mar.

Apr.

$120.00
$78.12
$41.88
$209.58
$9.25
$0.44
-$176.51
-$60.01
-$116.50

$140.00
$91.14
$48.86
$209.58
$3.61
$1.36
-$162.97
-$55.41
-$107.56

$160.00
$104.16
$55.84
$209.58
$3.61
$1.77
-$155.58
-$52.90
-$102.68

$140.00
$91.14
$48.86
$209.58
$4.48
$0.44
-$164.76
-$56.02
-$108.74

Notes:
Net sales - Estimated 1994 net sales per month
COGS - 65.1% of net sales per month
Operating expenses - $200*12 = $2,400 annually under seasonal producti
Interest expense Interest income Income taxes - 34% of profit (loss) before taxes

May

$140.00
$91.14
$48.86
$209.58
$9.36
$0.44
-$169.65
-$57.68
-$111.97

June

$140.00
$91.14
$48.86
$209.58
$13.87
$0.44
-$174.15
-$59.21
-$114.94

July

Aug.

Sept.

$160.00
$104.16
$55.84
$209.58
$18.65
$0.44
-$171.95
-$58.46
-$113.49

$1,620.00
$1,054.62
$565.38
$209.58
$23.38
$0.44
$332.86
$113.17
$219.69

$1,840.00
$1,197.84
$642.16
$209.58
$28.14
$0.44
$404.88
$137.66
$267.22

Oct.

$2,140.00
$1,393.14
$746.86
$209.58
$33.05
$0.44
$504.67
$171.59
$333.08

lly under seasonal production+ $ 115 additional storage/handling costs = $2,515 annually ($209.58 monthly)

Nov.

$2,285.00
$1,487.54
$797.47
$209.58
$26.79
$0.44
$561.54
$190.92
$370.61

ally ($209.58 monthly)

Dec.

$1,115.00
$725.87
$389.14
$209.58
$18.82
$0.44
$161.17
$54.80
$106.37

Total

$10,000.00
$6,510.00
$3,490.00
$2,515.00
$193.01
$7.54
$789.53
$268.44
$521.09

Toy World, Inc.

Cash Budget Under Level Productions, 1994
(thousands of dollars)

Jan.
Inflows
Collections
After-tax interest income
Total

$1,965.00
$0.44
$1,965.44

Outflows
Payments of accounts payable
Tax payments
Repayment of long-term debt
Operating expenses
Interest expense
Wages
Total
Net inflow (outflow)
Beginning cash
Ending cash before any loan increase or repayment
Loan availment
Loan repayment
End-of-month cash balance

$282.00
$0.00
$0.00
$209.58
$9.25
$292.50
$793.33
$1,172.11
$200.00
$1,372.11
$0.00
$752.00
$620.11

Min cash balance

$200.00

Loan balance, beg.

Availment (Repayment)
Loan balance, end

$752.00
$752.00
$0.00

Long-term debt
Balance, beg.
Repayment
Balance, end

$450.00
$0.00
$450.00

Interest Expense
on long-term debt
on notes payable

Interest income

9.625%
9.000%

4.00%

$3.61
$5.64
$9.25

Feb.

Mar.

Apr.

May

June

July

$940.00
$1.36
$941.36

$120.00
$1.77
$121.77

$140.00
$0.44
$140.44

$160.00
$0.44
$160.44

$140.00
$0.44
$140.44

$140.00
$0.44
$140.44

$250.00
$0.00
$0.00
$209.58
$3.61
$292.50
$755.69
$185.67
$620.11
$805.78
$0.00
$0.00
$805.78

$250.00
$88.00
$0.00
$209.58
$3.61
$292.50
$843.69
-$721.92
$805.78
$83.86
$116.14
$0.00
$200.00

$250.00
$35.00
$0.00
$209.58
$4.48
$292.50
$791.56
-$651.12
$200.00
-$451.12
$651.12
$0.00
$200.00

$250.00
$0.00
$0.00
$209.58
$9.36
$292.50
$761.45
-$601.01
$200.00
-$401.01
$601.01
$0.00
$200.00

$250.00
$35.00
$3.34
$209.58
$13.87
$292.50
$804.30
-$663.86
$200.00
-$463.86
$663.86
$0.00
$200.00

$250.00
$0.00
$0.00
$209.58
$18.65
$292.50
$770.73
-$630.29
$200.00
-$430.29
$630.29
$0.00
$200.00

$0.00
$0.00
$0.00

$0.00
-$116.14
$116.14

$116.14
-$651.12
$767.26

$767.26
-$601.01
$1,368.27

$1,368.27
-$663.86
$2,032.13

$2,032.13
-$630.29
$2,662.42

$450.00
$0.00
$450.00

$450.00
$0.00
$450.00

$450.00
$0.00
$450.00

$450.00
$0.00
$450.00

$450.00
$25.00
$425.00

$425.00
$0.00
$425.00

$3.61
$0.00
$3.61

$3.61
$0.00
$3.61

$3.61
$0.87
$4.48

$3.61
$5.75
$9.36

$3.61
$10.26
$13.87

$3.41
$15.24
$18.65

Aug.

Sept.

Oct.

Nov.

Dec.

$140.00
$0.44
$140.44

$160.00
$0.44
$160.44

$1,620.00
$0.44
$1,620.44

$1,840.00
$0.44
$1,840.44

$2,140.00 $
$0.44 $
$2,140.44 $

$250.00
$0.00
$0.00
$209.58
$23.38
$292.50
$775.46
-$635.02
$200.00
-$435.02
$635.02
$0.00
$200.00

$250.00
$35.00
$0.00
$209.58
$28.14
$292.50
$815.22
-$654.78
$200.00
-$454.78
$654.78
$0.00
$200.00

$250.00
$0.00
$0.00
$209.58
$33.05
$292.50
$785.13
$835.31
$200.00
$1,035.31
$0.00
$835.31
$200.00

$250.00
$0.00
$0.00
$209.58
$26.79
$292.50
$778.87
$1,061.57
$200.00
$1,261.57
$0.00
$1,061.57
$200.00

$250.00
$35.00
$4.55
$209.58
$18.82
$292.50
$810.45
$1,329.99
$200.00
$1,529.99
$0.00
$1,329.99
$200.00

Total

9,505
8
9,513

200
$2,662.42
-$635.02
$3,297.44

$3,297.44
-$654.78
$3,952.23

$3,952.23
$835.31
$3,116.92

$3,116.92
$1,061.57
$2,055.35

$2,055.35
$1,329.99
$725.36

$425.00
$0.00
$425.00

$425.00
$0.00
$425.00

$425.00
$0.00
$425.00

$425.00
$0.00
$425.00

$425.00
$25.00
$400.00

$3.41
$19.97
$23.38

$3.41
$24.73
$28.14

$3.41
$29.64
$33.05

$3.41
$23.38
$26.79

$3.41
$15.42
$18.82

Toy World, Inc.

Schedule of Changes Affecting Inventory, 1994
(thousands of dollars)
Jan.
Finished Goods, Beg.
Finished Goods Completed
Finished Goods Available for Sale
Cost of Goods Sold
Finished Goods, End.

$586.00
$542.50
$1,128.50
$78.12
$1,050.38

Feb.
$1,050.38
$542.50
$1,592.88
$91.14
$1,501.74

Mar.
$1,501.74
$542.50
$2,044.24
$104.16
$1,940.08

Toy World, Inc.

Calculation of Accrued Taxes for 1994
(thousands of dollars)
Jan.
Accrued Taxes, beg.
Taxes Payable on Profits in Month
Taxes Paid
Accrued Taxes, end

$88.00
-$60.01
$0.00
$27.99

Feb.
$27.99
-$55.41
$0.00
-$27.42

Mar.
-$27.42
-$52.90
$88.00
-$168.32

Notes:
Finished goods (completed) - COGS/12
Taxes paid - $88 (previous year's balance) on March, $35 on April,

Apr.
$1,940.08
$542.50
$2,482.58
$91.14
$2,391.44

May
$2,391.44
$542.50
$2,933.94
$91.14
$2,842.80

Apr.

May

-$168.32
-$56.02
$35.00
-$259.34

-$259.34
-$57.68
$0.00
-$317.02

June
$2,842.80
$542.50
$3,385.30
$91.14
$3,294.16

June
-$317.02
-$59.21
$35.00
-$411.23

July
$3,294.16
$542.50
$3,836.66
$104.16
$3,732.50

July
-$411.23
-$58.46
$0.00
-$469.70

balance) on March, $35 on April, June, September, and December

Aug.

Sept.

$3,732.50
$542.50
$4,275.00
$1,054.62
$3,220.38

$3,220.38
$542.50
$3,762.88
$1,197.84
$2,565.04

Aug.

Sept.

-$469.70
$113.17
$0.00
-$356.52

-$356.52
$137.66
$35.00
-$253.87

Oct.
$2,565.04
$542.50
$3,107.54
$1,393.14
$1,714.40

Oct.
-$253.87
$171.59
$0.00
-$82.28

Nov.
$1,714.40
$542.50
$2,256.90
$1,487.54
$769.37

Nov.
-$82.28
$190.92
$0.00
$108.64

Dec.
$769.37
$542.50
$1,311.87
$725.87
$586.00

Dec.
$108.64
$54.80
$35.00
$128.44

Total
$25,608.29
$6,510.00
$32,118.29
$6,510.00
$25,608.29

Total
-$2,121.08
$268.44
$228.00
-$2,080.64

Notes payable: Short term loan to finance working capital with inventory. Int
Income statement

Balance Sheet
Jan

Net Sales
COGS
Operating expense
Int Expenses:
LT Debt
Notes payable
Add: Interest income
PBT
Tax
PAT

65.10%

120
78.12
209.5833

450 3.609375
752
5.64
200 0.666667
-176.286
34% -59.93725
-116.349

Cash
623.9467
A/R
1060
Inventory
1050.38
Total CA
2734.327
Net PE
1176
Total Assets
3910.327
Accr Int.
3.609375
Acc. Pay.
250
Notes Payable
0
Accrued tax
28.1
LT Loan curr.
50
Total CL
331.7094
LT Loan Non Cur
400
Net worth
3178.651
Total Liabilitie 3910.361

pital with inventory. Interest paid on average balance

Cash flow statement
Jan
Inflows:
A/R
Interest credit
Total Cash inflows

Outflows:
A/P Paid:
Other manuf cost
Opex
Interest paid:
Notes Payable:
Total Cash outflow
Net cash inflow:
Op Bal. Cash
Total Cash available

1965
0.67
1965.67

282
292.5
209.5833

5.64
789.7233
1175.947
200
1375.947

Notes payable op.

752
Load repaid (repaid)
-752
Notes payable outstanding
Cahs balance:

623.9467

Jan

Opn BalancProduction Sales

Closing balance
586
542.5
78.12 1050.38