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 follows.
Peabody & Peabody Balance Sheet December 31, 2015 ($000)
Assets:
Cash $400
Market securities 200
Accounts recievable 1,200
inventories 1,800
Total Current assets 3,600
Net fixed assets 4,000
Total Assets $7,600
Liabilities and stockholders' equity:
Accounts payable $ 1,400
Accruals 400
Other current liabilities 80
Total current liabilities $1,880
Long term debt 2,000
total liabilities 3,880
common equity 3,720
Total liabilities and stockholders' equity: $7,600
a. Prepare a pro forma balance sheet dated December 31, 2017.
b. Discuss the financing changes suggested by the statement prepared in part a.