Solution-How do you interpret the negative numbers for

How do you interpret the negative numbers for income taxes

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Reference no: EM13892260

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.

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

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?

Reference no: EM13892260

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How do you interpret the negative numbers for income taxes

Reference no: EM13892260

Reference no: EM13892260

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