Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wish
ID: 2643306 • Letter: P
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.
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