Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wish

Question

Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b.

(1) The percents 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 2016, and equipment costing $850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as $290,000, and in 2017 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2017.
(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 2016 and $12 million in 2017.
(10) The December 31, 2015, balance sheet folows.

a. Prepare a pro forma balance sheet dated December 31, 2017
b. Discuss the financing changes suggeste by the statement prepared in part a.

Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b. (1) The percents 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 2016, and equipment costing $850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as $290,000, and in 2017 $390,000 of depreciation will be taken. (5) Accruals are expected to rise to $500,000 by the end of 2017. (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 2016 and $12 million in 2017. (10) The December 31, 2015, balance sheet folows. a. Prepare a pro forma balance sheet dated December 31, 2017 b. Discuss the financing changes suggeste by the statement prepared in part a.

Explanation / Answer

The company will need an additional financing of $775,000 through loans maybe short term loans.

12% 18% 14% 3% 50% Sales A/R Inventory A/P Net Profit Dividend Payout 2015 10000 1200 1800 1400 300 2016 11000 1320 1980 1540 330 165 2017 12000 1440 2160 1680 360 180

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