Pro forma balance sheet Peabody & Peabody has 2019 sales of $10 million. It wishes to analyze expected performance and financing needs for 2021, which is 2 years ahead. Given the following information, respond to parts a and b. (1) The percent of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3% (2) Marketable securities and other current liabilities are expected to remain unchanged. (3) A minimum cash balance of $480,000 is desired. (4) A new machine costing $650,000 will be acquired in 2020, and equipment costing $850,000 will be purchased in 2021. Total depreciation in 2020 is forecast as $290,000, and in 2021 $390,000 of depreciation will be taken. (5) Accruals are expected to rise to $500,000 by the end of 2021. (6) No sale or retirement of long-term debt is expected. (7) No sale or repurchase of common stock is expected. (8) The dividend payout of 50% of net profits is expected to continue. (9) Sales are expected to be $11 million in 2020 and $12 million in 2021. (10) The December 31, 2019, balance sheet follows Peabody & Peabody Balance Sheet December 31, 2019 ($000) Assets Cash 400 Marketable securities 200 Accounts receivable 1200 Inventories 1800 Total current assets 3600 Net fixed assets 4000 Total assets 7600 Liabilities and Stockholders equity Accounts payable 1400 Accruals 400 Other current liabilities 80 Total current liabilities 1880 Long-term debt 2000 Total liabilities 3880 Common equity 3720 Total liabilities and stockholders’ equity $7,600 a. Prepare a pro forma balance sheet dated December 31, 2021. b. Discuss the financing changes suggested by the statement prepared in part a.
Pro forma
(1) The percent of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2020, and equipment costing $850,000 will be purchased in 2021. Total
(5) Accruals are expected to rise to $500,000 by the end of 2021.
(6) No sale or retirement of long-term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2020 and $12 million in 2021.
(10) The December 31, 2019, balance sheet follows
Peabody & Peabody Balance Sheet December 31, 2019 ($000)
Assets
Cash 400
Marketable securities 200
Accounts receivable 1200
Inventories 1800
Total current assets 3600
Net fixed assets 4000
Total assets 7600
Liabilities and
Accounts payable 1400
Accruals 400
Other current liabilities 80
Total current liabilities 1880
Long-term debt 2000
Total liabilities 3880
Common equity 3720
Total liabilities and stockholders’ equity $7,600
a. Prepare a pro forma balance sheet dated December 31, 2021.
b. Discuss the financing changes suggested by the statement prepared in part a.
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