Question

X_SUP

X_SUP Paddle board (X_SUP) company sells stand-up paddle boards (SUPs) & accessories. X_SUP had a great 2014 and anticipates a banner year in 2015. To prepare for 2015 the owners, asked you to create pro forma financial statements for 2015.

They would like 2 sets of pro-formas.

One that shows the company operating as it has been (the Business-As-Usual scenario),

The Second set that shows financing need if they could take supplier 2% discounts. To take the discounts they would have to pay Accounts Payable in 10 days, so the year-end A/P balance would be 10-days of COGS. Inventory and COGS would be 2% lower than in the business-as-usual scenario.

Assumption for Business-As-Usual Scenario

Sales from 2014 to 2015 increase by 25% COGS remain at 70% of Sales GA&S Expense increases to $145,000 Interest Expense will be 8.5% of the year-end Bank Loan balance Depreciation Expense will be $10,000 in 2015 X_SUP will purchase $30,000 of long-term depreciable assets in 2015 Cash, Accounts Receivable, Accounts Payable and Inventory will be the same %-of-Sales in 2015 as they were in 2014. Common Stock is unchanged. All profits (Net Income) are retained to finance future growth. Bank Loan is the plug figure. If this is negative then Cash becomes the plug figure.

Assumption for 2% Discount-Pay in 10-days Scenario

Use the assumptions above for the Business-As-Usual scenario except: COGS will be 98% of the BAU COGS because of the 2% supplier discount. Inventory and A/Payable must be adjusted for the 2% discount. Inventory will be based on the 2% discount. Accounts Payable will be 10-days of COGS at year-end (Use a 365-day year) Interest Expense will be 8.5% of the year-end Bank Loan balance. Bank Loan is the plug figure. If this is negative then Cash becomes the plug figure.

Assignment:

Create the pro forma financial statements and highlight the loan need.

X_SUP
Income Statement	2014 Actual	2015 Pro Forma	2015 Pro Forma (10 -day AP)
Sales	550,000.00
COGS	385,000.00
Gross Margin	165,000.00
GA&S Expense	110,000.00
Interest Expense	7,300.00
Depreciation Expense	7,500.00
Taxable Income	40,200.00
Taxes (30%)	12,060.00
Net Income	28,140.00
Balance Sheet
Assets	2014 Actual	2015 Pro Forma	2015 Pro Forma (10 -day AP)
Cash	5,500.00
A/Receivables	22,000.00
Inventory	167,500.00
Total Current Assets	195,000.00
Net Fixed Assets	80,000.00
Total Assets	275,000.00
Liabilities & Equity	2014
A/Payable	39,600.00
Bank Loan (8.5%)	86,000.00
Total Current Liabilities	125,600.00
Common Stock	40,000.00
Retained Earnings	109,400.00
Total Liabilities & Equity	275,000.00	343,750.00

Answer 1

X_SUP
Income Statement	2014 Actual	2015 Pro Forma	2015 Pro Forma (10 -day AP)
Sales	550,000.00	687,500.00	687,500.00
COGS	385,000.00	481,250.00	471,625.00
Gross Margin	165,000.00	206,250.00	215,875.00
GA&S Expense	110,000.00	145,000.00	145,000.00
Interest Expense	7,300.00	7,300.00	7,300.00
Depreciation Expense	7,500.00	10,000.00	10,000.00
Taxable Income	40,200.00	43,950.00	53,575.00
Taxes (30%)	12,060.00	13,185.00	16,072.50
Net Income	28,140.00	30,765.00	37,502.50
Balance Sheet
Assets	2014 Actual	2015 Pro Forma	2015 Pro Forma (10 -day AP)
Cash	5,500.00	6,875.00	6,875.00
A/Receivables	22,000.00	27,500.00	27,500.00
Inventory	167,500.00	209,375	205,188
Total Current Assets	195,000.00	243,750	239,563
Net Fixed Assets	80,000.00	100,000.00	100,000.00
Total Assets	275,000.00	343,750.00	339,563.00
Liabilities & Equity	2014	2015 Pro Forma	2015 Pro Forma (10 -day AP)
A/Payable	39,600.00	49,500.00	12,921.00
Bank Loan (8.5%)	86,000.00	58,855.00	85,809.00
Total Current Liabilities	125,600.00	108,355.00	98,730.00
Common Stock	40,000.00	40,000.00	40,000.00
Retained Earnings	109,400.00	140,165.00	146,902.50
Total Liabilities & Equity	275,000.00	288,520.00	285,632.50
Cash Account	2015 Pro forma	2015 (10 day AP)
Beginning Balance	5500	5500
Receipt
Debtors	22000	22000
Current sale	660,000.00	660,000.00
Total availabe cash	687,500.00	687,500.00
Less: Payments
Creditors	39,600.00	39,600.00
Interest payment	7,130.00	7,130.00
Loan payment	27,145.00	191.00
Purchase of Asset	30,000.00	30,000.00
Purchases	431,750.00	458,704.00
G&S Expense	145,000.00	145,000.00
Total payment	680,625.00	680,625.00
Ending cash balance	6,875.00	6,875.00