We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Polar: Generally Accepted Accounting Principles and Cash Flow Statement

essay
The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

For Polar Sports, Inc. one potential big change could be the switch from seasonal production to level monthly, as is brought up by Mr. Johnson, vice president of operations. This will lead to several differences in forecasting compared with when the company still adopts seasonal production. The forecast will through light on the financial needs of the company. First of all, production will be distributed evenly throughout the year under level production. This implies material purchases should also be constant. In 2012, Polar Sport foresees total material purchases of $5,940,000. Based on that, we know the company is going to need to purchase material worthy of $495,000 monthly. Since the company has 30-day payment term, this 495,000 goes into account payable for one month. Second of all, end inventory is calculated as End Inventory=Beginning Inventory+(Units Produced-Units Sold)* Cost per Unit. Under level production, unit produced is constant each month. Third of all, it is believed that altogether $1,080,000 will be saved if Polar Sport adopts level production. This figure can be trace by comparing the Cost of Goods Sold under seasonal production ($11,880,000) and Cost of Goods Sold under level ($10,800,000) Last but not least, if Polar Sort adopts level production, there would an increase in storage and handling cost.

This amount is to be deduct from net income in pro forma income statement Besides the points mentioned above, there is also other information that needs to be considered during forecasting. It is not related to the switch from seasonal production to level production, but it has impacts on pro-forma incomes, balance and cash flow statement. Below is what was taken into consideration during the forecasting. 1. Operating expenses is projected to 24% of sales. This has noting to do with the two possible producing styles. 2. Tax rate is 34%

3. 7o% of the sales was generated by Polar’s wholesale channel. For wholesale purchases, customers usually take 60 days to pay. This tells us, account payable is the sum of 70% of the sales of the past two months. 4. The company would subject to 11% for the loan in excess of 2million 5. The company pays 8% coupon on the bond it issued

6. Capital expenditure is believed to be equal to depreciation at $300,000. As a result, net amount of plant, property and equipment stays the same as last year. Pro-forma financial statements are finished based on all the information listed here. Financial needs for each month in 2012 are to be found in line “bank note issuance” in cash flow statement, which in turn is determined by cash flow from operating and investing activities. If operating and investing activities are generating negative cash flows and the company does not have enough balance in its bank account for financing activities, then it needs loan from bank. Otherwise, it can use this cash to retire its loan. Apparently, Polar needs to borrow $50,000 in April, $953,000 in May, respectively $1,148,000 and $1,076,000 in June and July, another $1,024,000 in August and finally $286,000 and $190,000 in September and October.

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
icon
300+
Materials Daily
icon
100,000+ Subjects
2000+ Topics
icon
Free Plagiarism
Checker
icon
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access
immediately?

Your Answer Is Very Helpful For Us
Thank You A Lot!

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59