With the budgeting cycle coming towards completion, the manager has to assess whether plans are practical and realistic with respect to the present financial circumstances and restraints. There are pressing cash needs based on seasonal demand. The loans and borrowing that are required must be accounted for at five different dates, and the financial standing should be predicted. This is a redrafted account of Hanson Industries (B) and (C).
Hanson Ski Products - Yearly Balance Sheets
Yearly and Projected
Using the information in the balance sheet for March 31, 1986 (Exhibit 2), and the fiscal year 1987 budgets (Exhibits 3 and 4), prepare a projected balance sheet for Hanson Ski Products for March 31, 1987. (To do this, you will need to estimate the size of the commercial bank loan—“Notes-bank”—on that date.) Does your balance sheet tell you whether or not the plans on which the budgets are based are feasible?
Project the size of the commercial bank loan at the end of each quarter of FY 1987. Can Hanson stay within the commercial banks’ line of credit of $4.2 million? Will the company have sufficient collateral?
Prepare quarterly balance sheets for Hanson Ski Products for June 30, 1986; September 30, 1986; and December 31, 1986. What do the four balance sheets you have prepared tell you about the financial structure and strength of Hanson Ski Products?
Denny Hanson was particularly concerned that the stockholder loans be paid off in November1986 when they were due, and he asked Dave Snyder, treasurer, to prepare a cash budget by months for the third quarter of FY 1987 (Exhibit 5). Do you see any problems in paying off the loans on time?What could Hanson do to be sure the loans can be paid?