Peabody & Peabody has 2019 sales of $10 million. It wishes to analyze expected performance and financing needs for 2021, which is 2 years ahead. Given the following information, respond to parts a and b.
(1) The percent 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 2020, and equipment costing $850,000 will be purchased in 2021. Total depreciation in 2020 is forecast as $290,000, and in 2021 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 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 million in 2020 and $12 million in 2021.
(10) The December 31, 2019, balance sheet follows.

a. Prepare a pro forma balance sheet dated December 31, 2021.
b. Discuss the financing changes suggested by the statement prepared in part a.

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Peabody & Peabody Balance Sheet December 31, 2019 ($000) Liabilities and stockholders’ equity Assets $ 400 Accounts payable Cash $1,400 Marketable securities Accruals 200 400 Accounts receivable 1,200 Other current liabilities 80 Total current liabilities $1,880 Inventories 1,800 Total current assets $3,600 2,000 Long-term debt Net fixed assets Total liabilities $3,880 4,000 $7,600 Common equity Total assets 3,720 Total liabilities and stockholders' equity $7,600