Question

CHAPTER CASE Cash Flows and Financial Statements at Sunset Boards, Inc. 2018 $224,359 $283,281 -32,372 34,394 63,334 71,584 13.783 15780 44,121 57,586 Sunset Boards is a small company that manufactures and sells Surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing. not business. As a result, the company's financial records are not well maintained The initial investment in Sunset Boards was pro- vided by Tad and his friends and family. Because the ini- tial investment was relatively small, and the company has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. But thanks to word of mouth among professional surf. ers, sales have picked up recently, and Tad is consider ing a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his "sticks (surfer lingo for boards) to other sellers. Tad's expansion plans require a significant invest- ment, which he plans to finance with a combination of additional funds from outsiders plus some money bor- rowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors. Tad has hired financial analyst Jameson Reid to evaluate the performance of the com- pany over the past year. After rooting through old bank statements, sales re- ceipts, tax returns, and other records, Jameson has as. sembled the following information: Cost of goods sold Cash Depreciation Interest expense Selling and administrative expenses Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity 57,220 63,479 279,419 348,508 440,122 536,483 22,939 29.755 26,079 28,474 141,040 158,368 48,272 66,244 - 0 27,157 Sunset Boards currently pays out 50 percent of net Income as dividends to Tad and the other original inves tors and has a 21 percent tax rate. You are Jameson's assistant, and he has asked you to prepare the following: 1. An income statement for 2018 and 2019. 2. A balance sheet for 2018 and 2019. 3 Operating cash flow for each year 4. Cash flow from assets for 2019. 5. Cash flow to creditors for 2019. 6. Cash flow to stockholders for 2019.

Answer 1

98 99 Sunset Boards Inc. Income Statement 2018 Net Sales 440122 Less Cost Of Goods Sold 224359 Gross Profit 215763 Selling and Adminstrative expenses 44121 Depreciation expense 63334 EBIT 108308 Interest Paid 13783 Income Before Taxes 94525 Income Tax @21% 19850 Net Income (A) 74675 Less Dividend (A *50 %) 37337" Additions to Retained Eanings 37337 100 101 2019 536483 283281 253202 57586 71584 124032 15780 108252 22733 85519 42760 42760 102 103 104 105 106 107 108 109 2019 110 111 112 Sunset Boards ,Inc. Balance Sheet 2018 32372 22939 48272 103583 279419 383002 Assets Cash Accounts Receivable Inventory Total Current Assets Net Fixed Assets Total Assets 113 114 115 116 34394 29755 66244 130393 348508 478901

127 Note; As we kow assets = Liabilities +Stockholder's Equity, therefore for finding out Stockholder's Equity total liabiities have been deducted from total assets 129 130 131 132 133 Calculation of Operating Cash flow 134 Particulars 2018 2019 135 EBIT 137 138 Add Depreciation Less Taxes Operating Cash Flow 108,308 63,334 19,850 151,792 124,032 71,584 22,733 172,883 Calculation of Capital Spending 143 Particulars Amount $ 144 Ending Net Fixed assets Less Beginning Net Fixed Assets Add Depreciation Net Capital Spending 348,508 279,419 71,584 140,673 149

Calculation of Changes in Net Working Capital Particulars Amount $ Ending Net Working Capital Less Beginning Net Working Capital Changes in Net Working Capital 38,440 (130393-91953) 20,284 (103583-83299) 18,156 156 158 Calculation of Cash Flow From Assets 159 160 Particulars Amount $ 161 163 164 Operating Cash Flow Less Net Capital Spending Less Changes in Net Working Capital Cash Flow from Assets 172,883 140,673 18,156 14,054 165 166

Calculation of Cash Flow to Creditors 169 Particulars Amount $ 170 172 Interest Paid Less Net new Borrowings Cash Flow to Creditors 15,780 17,328 (1,548) (158368-141040) 174 175 Calculation of Cash Flow to Stockholders 176 177 Particulars Amount $ 178 179 180 Dividend Paid less New Equity raised Cash flow to Stockholder's 42,760 27,157 15,603 184