Question

Chapter 4, Question 4

Pro forma balance sheet   

Peabody​ & Peabody has 2019 sales of $10.1 million. It wishes to analyze expected performance and financing needs for 2021—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; 11.9%. Inventory; 17.6%​; Accounts​ payable, 14.4%​; Net profit​ margin, 3.5%.
2. Marketable securities and other current liabilities are expected to remain unchanged.
3. A minimum cash balance of $481,000 is desired.
4. A new machine costing $ 652,000 will be acquired in 2020​, and equipment costing $855,000 will be purchased in 2021. Total depreciation in 2020 is forecast as $288,000​, and in 2021 $388,000 of depreciation will be taken.
5. Accruals are expected to rise to $503,000 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 $ 11.2 million in 2020 and $ 10.9 million in 2021.

(10)The December​ 31, 2019​, balance sheet is here

Leonard Industries Balance Sheet December​ 31, 2019

Assets:                                                                         Liabilities and Stockholders’ Equity                         

Cash                                         $403,000         Accounts payable                                $1,397,000

Marketable securities             199,000           Accruals                                               405,000

Accounts receivable                1,197,000        Other current liabilities                      80,300

Inventories                              1,805,000        Total current liabilities                        $1,882,300

Total current assets                $3,604,000      Long-term debt                                   2,005,700

Net fixed assets                       4,003,000        Common stock                                    3,719,000

Total assets                             $7,607,000      Total liabilities and stockholders' equity $7,607,000

a. Prepare a pro forma balance sheet dated December​ 31, 2021.

b. Discuss the financing changes suggested by the statement prepared in part

                                                                                                                                                           

For Example: The answer to a. should look like:

​Complete the assets part of the pro forma balance sheet for Peabody​ & Peabody for December​ 31, 2021 ​below: ​(Round to the nearest​ dollar.)

Pro Forma Balance Sheet
Peabody & Peabody
December 31, 2021
Assets
Current assets
Cash	$
Marketable securities	$
Accounts receivable	$
Inventories	$
Total current assets	$
Net fixed assets	$
Total assets	$

Answer 1

Proforma Balance Sheet

Pro Forma Balance Sheet
Peabody & Peabody
December 31, 2021
Assets
Current assets
Cash	$	481000
Marketable securities	$	199000
Accounts receivable	$	1297100
Inventories	$	1918400
Total current assets	$	3895500
Net fixed assets	$	4834000
Total assets	$	8729500

Financing changes

1. Cash in hand to be increased to 481000 by maintaining the same AR for higher sales.

2. With the addition of the new machine & equipment, fixed assets at the end of 2021 after considering depreciation is as under:

Fixed assets as on 31Dec 2019- A	4003000
Add: New Machine	652000
Add: New equipment	855000
Total new fixed assets - B	1507000
Less: Depreciation for 2020	-288000
Less: Depreciation for 2021	-388000
Total Depreciation - C	831000
Fixed assets as on 31Dec 2021- (A+B-C)	48,34,000