Peel Inc., a manufacturing company, has been growing quickly, but it has found that itsfinancial 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, Peel Inc. is forecastinglevel production and the impact of plans by the credit department to bring the average collection period down to 35 days.

Forecasted sales for the upcoming months are as follows:

January	$2,174,978
February	2,299,977
March	2,449,976
April	2,624,974
May	2,749,973
June	2,849,972

Sales for November were $1,924,981 and will be approximately $2,049,980 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 $590,000 a month beginning in January. In November they were $670,000, and in December they were $610,000. The purchases are paid in 40 days. Labour expense will be paid as incurred and will be $198,000 a month. Other expenses of manufacturing will also be paid as incurred and are expected to be $360,000 a month. Cost of goods sold has regularly been 70% of sales.

Amortization is $39,000 per month. Selling and administrative expenses are expected to be 13 percent of sales. The tax rate is 42 percent.

There will be payments on Notes Payable of $680,000 in each of February and May. Income taxes of $340,000 are due and paid in April. Dividends of $24,000 and interest of $270,000 (3 months of interest) are paid in January and April.

PEEL INC.

Balance Sheet (Estimated)

December 31, 2020

($ thousands)

ASSETS
Current Assets:
	Cash				$666
	Accounts Receivable				3,578
	Inventory				8,231
			Total Current Assets		$12,475
Capital Assets:
	Plant and Equipment			$11,273
	Less: Accumulated Amortization			4,784	6,489
Total Assets					$18,964
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
	Accounts Payable				$945
	Notes Payable				3,700
	Accrued Liabilities				2,596
		Total Current Liabilities			$7,241
	Long-term Debt				4,725
	Common Stock				4,500
	Retained Earnings				2,498
Total Liabilities and Shareholders Equity					$18,964

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.

1 2 Actual Expected Forecasted Pro-Forma Income Statement- Jan. to Jun. SO Nov Dec SO Jan $0 Feb $0 Mar $O Apr $0 May $0 Jun $O Sales $0 COGS (xx%) Gross Profit Amortization Selling and Admin (xx%) Operating Profit Interest (S) Profit Before Taxes Tax (xx%) Net Income Dividends To Retained Earnings Purchases Labour Other Manufacturing Cost of Goods Produced 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Principal Payment - Notes Interest Payments Income Tax Payments Dividend Payments Purchases From Nov Purchases From Dec Purchases From Jan Purchases From Feb Purchases From Mar Purchases From Apr Purchases From May Purchases Total Cash Payments Labour (Cash) Selling & Admin (Cash) Other Manufacturing (Cash) Principle Payments (Cash) Interest (Cash) Taxes (Cash) Dividends (Cash) Total Cash Payments Shell Sheet1 + 4 A B D E F F G G H H 1 J K L M N 1 2 Actual Expected Forecasted Pro-Forma Income Statement- Jan, to Jun Nov Dec Jan Feb Mar Apr May Jun TUTIOTUTTUU LOTTO Purchases Labour Other Manufacturing Cost of Goods Produced Principal Payment - Notes Interest Payments Income Tax Payments Dividend Payments Purchases From Nov Purchases From Dec Purchases From Jan Purchases From Feb Purchases From Mar Purchases From Apr Purchases From May Purchases Total Cash Payments 3 TU 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 Labour (Cash) Selling & Admin (Cash) Other Manufacturing (Cash) Principle Payments (Cash) Interest (Cash) Taxes (Cash) Dividends (Cash) Total Cash Payments Sales Cash Receipts Nov Cash Receipts Dec Cash Receipts Jan Cash Receipts Feb Cash Receipts Mar Cash Receipts Apr Cash Receipts May Cash Receipts Jun Total Cash Receipts January - June Cash Budget Cash Budget Carte Dante C 1 2 Actual Expected Forecasted Pro-Forma Income Statement- Jan. to Jun. SO Nov Dec SO Jan $0 Feb $0 Mar $O Apr $0 May $0 Jun $O Sales $0 COGS (xx%) Gross Profit Amortization Selling and Admin (xx%) Operating Profit Interest (S) Profit Before Taxes Tax (xx%) Net Income Dividends To Retained Earnings Purchases Labour Other Manufacturing Cost of Goods Produced 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Principal Payment - Notes Interest Payments Income Tax Payments Dividend Payments Purchases From Nov Purchases From Dec Purchases From Jan Purchases From Feb Purchases From Mar Purchases From Apr Purchases From May Purchases Total Cash Payments Labour (Cash) Selling & Admin (Cash) Other Manufacturing (Cash) Principle Payments (Cash) Interest (Cash) Taxes (Cash) Dividends (Cash) Total Cash Payments Shell Sheet1 + 4 A B D E F F G G H H 1 J K L M N 1 2 Actual Expected Forecasted Pro-Forma Income Statement- Jan, to Jun Nov Dec Jan Feb Mar Apr May Jun TUTIOTUTTUU LOTTO Purchases Labour Other Manufacturing Cost of Goods Produced Principal Payment - Notes Interest Payments Income Tax Payments Dividend Payments Purchases From Nov Purchases From Dec Purchases From Jan Purchases From Feb Purchases From Mar Purchases From Apr Purchases From May Purchases Total Cash Payments 3 TU 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 Labour (Cash) Selling & Admin (Cash) Other Manufacturing (Cash) Principle Payments (Cash) Interest (Cash) Taxes (Cash) Dividends (Cash) Total Cash Payments Sales Cash Receipts Nov Cash Receipts Dec Cash Receipts Jan Cash Receipts Feb Cash Receipts Mar Cash Receipts Apr Cash Receipts May Cash Receipts Jun Total Cash Receipts January - June Cash Budget Cash Budget Carte Dante C