Assume you are the Financial Analyst for Greenlife Industries, and it is January 1, 2021.

Greenlife Industries, a manufacturing company, has been growing quickly, but it has found that its financial situation is continually under pressure. Production has fluctuated to meet demand in an attempt to provide first-class service, resulting in larger inventory positions. Also, the collection of accounts has worsened to approximately 60 days, which is well above the terms of 30 days. To address the financial concerns, Greenlife Industries has proposed level production and an effort by the credit department to bring the average collection period down to 35 days.

Estimated sales for the upcoming months are as follows:

January	$3,915,000
February	4,140,000
March	4,410,000
April	4,725,000
May	4,950,000
June	5,130,000

Sales for November were $3,465,000 and will be approximately $3,690,000 for the just completed month of December. It is projected that the current collection period of 60 days will be reduced to 50 days for January and February and to 42 days for March and April, and will meet the target of 35 days in May and June.

Purchases are forecast to be $1,170,000 a month beginning in January. In November they were $1,350,000, and in December they were $1,215,000. The purchases are paid in 40 days. Labour expense will be paid as incurred and will be $390,000 a month. Other expenses of manufacturing will also be paid as incurred and are expected to be $750,000 a month. Cost of goods sold has regularly been 70% of sales.

Amortization is $76,000 per month. Selling and administrative expenses are expected to be 13 percent of sales (and paid as incurred). The tax rate is 42 percent.

There will be payments on Notes Payable of $1,350,000 in each of February and May. Income taxes of $676,000 are due in April. Dividends of $45,000 and interest of $540,000 (3 months of interest) are payable in January and April.

GREENLIFE INDUSTRIES

Balance Sheet (Estimated)

December 31, 2020

($ thousands)

ASSETS
Current Assets:
	Cash				$1,332
	Accounts Receivable				7,156
	Inventory				16,462
			Total Current Assets		$24,950
Capital Assets:
	Plant and Equipment			$22,546
	Less: Accumulated Amortization			9,568	12,978
Total Assets					$37,928
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
	Accounts Payable				$1,890
	Notes Payable				7,400
	Accrued Liabilities				5,192
		Total Current Liabilities			$14,482
	Long-term Debt				9,450
	Common Stock				9,000
	Retained Earnings				4,996
Total Liabilities and Shareholders Equity					$37,928

Required:

Using the information above, construct an pro forma Income Statement and cash budget for the six-month period (January to June 2021). Identify if there will be any need for short-term financing. Also, comment on the policy changes and potential consequences if the collection period had remained at 60 days. Assume capital assets are sufficient for increased sales.

Prepare a monthly pro forma Balance Sheet (for the six months June 2021). There are no changes in accounts not shown above.