Cash Flows

Topics: Generally Accepted Accounting Principles, Balance sheet, Inventory Pages: 4 (652 words) Published: October 6, 2010

Below are the financial statements that you are asked to prepare.

1.The income statement for each year will look like this:

Income Statement
Cost of goods sold96,952122,418
Selling & administrative19,067 24,886
Depreciation27,370 30,936
EBIT$46,730 $53,600
Interest5,950 6,820
EBT$40,780 $46,780
Taxes (20%)8,1569,356
Net income$32,624 $37,424

Dividends$16,312 $18,712
Addition to retained earnings16,31218,712

2.The balance sheet for each year will be:

Balance sheet as of Dec. 31, 2008
Cash $13,990Accounts payable$24,725
Accounts receivable 9,913Notes payable11,270
Inventory 20,861Current liabilities$35,995
Current assets
Long-term debt $60,950
Net fixed assets $120,750Owners' equity68,569
Total assets$165,514Total liab. & equity$165,514

In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as:

Equity = $165,514 – 35,995 – 60,950
Equity = $68,569

Balance sheet as of Dec. 31, 2009
Cash $21,137Accounts payable$28,003
Accounts receivable 12,859Notes payable12,305
Inventory 28,628Current liabilities$40,308
Current assets
Long-term debt $70,150
Net fixed assets $147,115Owners' equity99,281
Total assets$209,739Total liab. & equity$209,739

The owner’s equity for 2009 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so:

Equity = $68,569 + 18,712 + 12,000
Equity = $99,281

3.Using the OCF equation:

OCF = EBIT + Depreciation – Taxes

The OCF for each year is:

OCF2008 = $46,730 + 27,370 – 8,156
OCF2008 = $65,944

OCF2009 = $53,600 + 30,936 – 9,356
OCF2009 = $75,180

4.To calculate the cash flow from...
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