1. 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 & 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 the 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 as follows.

Peabody & Peabody Balance Sheet December 31, 2015 ($000)

Assets

Cash

Marketable securities       400

Accounts receivable       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  $1,800

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.