Kroeger,
Inc., has current assets of $2,270, net fixed assets of $10,300,
current liabilities of $1,400, and long-term debt of $4,080.(Enter your answer as directed, but do not round intermediate calculations.)

Requirement 1:

What is the value of the shareholders’ equity account for this firm?

Shareholder's equity

$

Requirement 2:

How much is net working capital?

Net working capital

$

Explanation:

The balance sheet for the company will look like this:

Balance sheet

Current assets

$

2,270

Current liabilities

$

1,400

Net fixed assets

10,300

Long-term debt

4,080

Owner's equity

7,090

Total assets

$

12,570

Total liabilities and owners' equity

$

12,570

The
owners’ equity is a plug variable. We know that total assets must equal
total liabilities and owners’ equity. Total liabilities and owners’
equity is the sum of all debt and equity, so if we subtract debt from
total liabilities and owners’ equity, the remainder must be the equity
balance, so:

Owners' equity = Total liabilities and owners' equity – Current liabilities – Long-term debt

Owners' equity = $12,570 – 1,400 – 4,080

Owner's equity = $7,090

Net working capital is current assets minus current liabilities, so:

Draiman,
Inc., has sales of $599,000, costs of $259,000, depreciation expense of
$64,000, interest expense of $31,000, and a tax rate of 30 percent. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What is the net income for this firm?

Net income

$

Explanation:

The
income statement starts with revenues and subtracts costs to arrive at
EBIT. We then subtract out interest to get taxable income, and then
subtract taxes to arrive at net income. Doing so, we get:

Draiman,
Inc., has sales of $604,000, costs of $254,000, depreciation expense of
$61,500, interest expense of $28,500, and a tax rate of 35 percent. The
firm paid out $45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What is the addition to retained earnings?

Addition to retained earnings

$

Explanation:

The
income statement starts with revenues and subtracts costs to arrive at
EBIT. We then subtract out interest to get taxable income, and then
subtract taxes to arrive at net income. Doing so, we get:

Income statement

Sales

$

604,000

Costs

254,000

Depreciation

61,500

EBIT

$

288,500

Interest

28,500

Taxable income

$

260,000

Taxes (35%)

91,000

Net income

$

169,000

The dividends paid plus the addition to retained earnings must equal net income, so:

Net income = Dividends + Addition to retained earnings

Draiman, Inc., has sales of $604,000, costs of $254,000, depreciation expense of $61,500, interest expense of $28,500, and a tax rate of 35 percent. The firm paid out $45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What is the addition to retained earnings?

Addition to retained earnings

$

Explanation:

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement

Sales

$

604,000

Costs

254,000

Depreciation

61,500

EBIT

$

288,500

Interest

28,500

Taxable income

$

260,000

Taxes (35%)

91,000

Net income

$

169,000

The dividends paid plus the addition to retained earnings must equal net income, so:

Net income = Dividends + Addition to retained earnings

Draiman, Inc., has sales of $598,000, costs of $260,000, depreciation expense of $64,500, interest expense of $31,500, and a tax rate of 40 percent. The firm paid out $42,500 in cash dividends and has 53,000 shares of common stock outstanding. (Enter your answer as directed, but do not round intermediate calculations.)

Requirement 1:

What is the earnings per share figure?(Round your answer to 2 decimal places (e.g., 32.16).)

Earnings per share

$

Requirement 2:

What is the dividends per share figure?(Round your answer to 2 decimal places (e.g., 32.16).)

Dividends per share

$

Explanation:

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement

Sales

$

598,000

Costs

260,000

Depreciation

64,500

EBIT

$

273,500

Interest

31,500

Taxable income

$

242,000

Taxes (40%)

96,800

Net income

$

145,200

Earnings per share is the net income divided by the shares outstanding, so:

EPS = Net income / Shares outstanding

EPS = $145,200 / 53,000

EPS = $2.74 per share

And dividends per share are the total dividends paid divided by the shares outstanding, so:

Klingon
Widgets, Inc., purchased new cloaking machinery three years ago for
$4.7 million. The machinery can be sold to the Romulans today for $6.9
million. Klingon’s current balance sheet shows net fixed assets of $3.5
million, current liabilities of $780,000, and net working capital of
$137,000. If all the current assets were liquidated today, the company
would receive $895,000 cash. (Enter your answer as directed, but do not round intermediate calculations.)

Requirement 1:

What is the book value of Klingon’s total assets today? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Total asset book value

$

Requirement 2:

What is the market value of Klingon's total assets? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Total asset market value

$

Explanation:

To
find the book value of assets, we first need to find the book value of
current assets. We are given the NWC. NWC is the difference between
current assets and current liabilities, so we can use this relationship
to find the book value of current assets. Doing so, we find:

NWC = Current assets – Current liabilities

Current assets = $137,000 + 780,000 = $917,000

Now we can construct the book value of assets. Doing so, we get:

Book value of assets

Current assets

$

917,000

Fixed assets

3,500,000

Total assets

$

4,417,000

All of the information necessary to calculate the market value of assets is given, so:

The SGS Co. had $131,000 in taxable income. Use the rates from Table 2.3. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

Calculate the company’s income taxes.

Income taxes

$

Here is the Table 2.3

Explanation:

Using Table 2.3,
we can see the marginal tax schedule. The first $50,000 of income is
taxed at 15 percent, the next $25,000 is taxed at 25 percent, the next
$25,000 is taxed at 34 percent, and the next $31,000 is taxed at 39
percent. So, the total taxes for the company will be:

Chevelle, Inc., is obligated to pay its creditors $8,400 during the year. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

(a)

What is the value of the shareholders’ equity if assets equal $9,300?

Shareholders’ equity

$

(b)

What is the value of the shareholders’ equity if assets equal $6,900?

Shareholders’ equity

$

Explanation:

Owners'
equity is the maximum of total assets minus total liabilities, or zero.
Although the book value of owners’ equity can be negative, the market
value of owners’ equity cannot be negative, so:

Owners’ equity = Max [(TA – TL), 0]

(a)

If total assets are $9,300, the owners’ equity is:

Owners’ equity = Max[($9,300 – 8,400), 0]

Owners’ equity = $900

(b)

If total assets are $6,900, the owners’ equity is:

During
the year, Belyk Paving Co. had sales of $2,398,000. Cost of goods sold,
administrative and selling expenses, and depreciation expense were
$1,427,000, $435,200, and $490,200, respectively. In addition, the
company had an interest expense of $215,200 and a tax rate of 30
percent. (Ignore any tax loss carryback or carryforward provisions.) (Enter your answer as directed, but do not round intermediate calculations.)

Required:

(a)

What is Belyk’s net income? (Negative amount should be indicated by a minus sign.)

Net income

$

(b)

What is Belyk’s operating cash flow?

Operating cash flow

$

Explanation:(a)

The
income statement starts with revenues and subtracts costs to arrive at
EBIT. We then subtract interest to get taxable income, and then subtract
taxes to arrive at net income. Doing so, we get:

Income Statement

Sales

$

2,398,000

Cost of goods sold

1,427,000

Other expenses

435,200

Depreciation

490,200

EBIT

$

45,600

Interest

215,200

Taxable income

–$

169,600

Taxes (30%)

0

Net income

–$

169,600

The taxes are zero since we are ignoring any carryback or carryforward provisions.

(b)

The operating cash flow for the year was:

OCF = EBIT + Depreciation – Taxes

OCF = $45,600 + 490,200 – 0

OCF = $535,800

Net
income was negative because of the tax deductibility of depreciation
and interest expense. However, the actual cash flow from operations was
positive because depreciation is a non-cash expense and interest is a
financing, not an operating, expense.

Graffiti Advertising, Inc., reported the following financial statements for the last two years.(Enter your answer as directed, but do not round intermediate calculations.)

2014 Income Statement

Sales

$

567,200

Costs of goods sold

274,005

Selling & administrative

124,729

Depreciation

54,572

EBIT

$

113,894

Interest

19,384

EBT

$

94,510

Taxes

37,804

Net income

$

56,706

Dividends

$

10,000

Addition to retained earnings

$

46,706

GRAFFITI ADVERTISING, INC.
Balance Sheet as of December 31, 2013

Cash

$

13,360

Accounts payable

$

9,500

Accounts receivable

18,990

Notes payable

14,504

Inventory

13,798

Current liabilities

$

24,004

Current assets

$

46,148

Long-term debt

$

136,480

Net fixed assets

$

344,546

Owner's equity

$

230,210

Total assets

$

390,694

Total liabilities and owners’ equity

$

390,694

GRAFFITI ADVERTISING, INC.
Balance Sheet as of December 31, 2014

Cash

$

14,346

Accounts payable

$

10,516

Accounts receivable

21,095

Notes payable

16,470

Inventory

22,758

Current liabilities

$

26,986

Current assets

$

58,199

Long-term debt

$

152,400

Net fixed assets

$

406,307

Owner's equity

$

285,120

Total assets

$

464,506

Total liabilities and owners’ equity

$

464,506

Requirement 1:

Calculate the operating cash flow.

Operating cash flow

$

Requirement 2:

Calculate the change in net working capital.

Change in net working capital

$

Requirement 3:

Calculate the net capital spending.

Net capital spending

$

Requirement 4:

Calculate the cash flow from assets.(Do not include the dollar sign ($).Negative amount should be indicated by a minus sign.)

Cash flow from assets

$

Requirement 5:

Calculate the cash flow to creditors.

Cash flow to creditors

$

Requirement 6:

Calculate the cash flow to stockholders. (Negative amount should be indicated by a minus sign.)

Cash flow to stockholders

$

Explanation:1:

OCF = EBIT + Depreciation – Taxes

OCF = $113,894 + 54,572 – 37,804

OCF = $130,662

2:

Next, we will calculate the change in net working capital which is:

Now, we can calculate the capital spending. The capital spending is:

Net capital spending = NFA_{end} – NFA_{beg} + Depreciation

Net capital spending = $406,307 – 344,546 + 54,572

Net capital spending = $116,333

4:

Now, we have the cash flow from assets, which is:

Cash flow from assets = OCF – Change in NWC – Net capital spending

Cash flow from assets = $130,662 – 9,069 – 116,333

Cash flow from assets = $5,260

The company spent $5,260 on its assets. The cash flow from operations was $130,662, and the company spent $9,069 on net working capital and $116,333 on fixed assets.

5:

The cash flow to creditors is:

Cash flow to creditors = Interest paid – New long-term debt

Cash flow to creditors = $19,384 – ($152,400 – 136,480)

Cash flow to creditors = $3,464

The cash flow to stockholders is a little trickier in this problem. First, we need to calculate the new equity sold. The equity balance increased during the year. The only way to increase the equity balance is to add to retained earnings or sell equity. To calculate the new equity sold, we can use the following equation:

New equity = Ending equity – Beginning equity – Addition to retained earnings

New equity = $285,120 – 230,210 – 46,706

New equity = $8,204

What happened was the equity account increased by $54,910. Of this increase, $46,706 came from addition to retained earnings, so the remainder must have been the sale of new equity. Now we can calculate the cash flow to stockholders as:

6:

Cash flow to stockholders = Dividends paid – Net new equity

Cash flow to stockholders = $10,000 – 8,204

Cash flow to stockholders = $1,796

The company paid $3,464 to creditors and raised $1,796 from stockholders.

Finally, the cash flow identity is:

Cash flow from assets

=

Cash flow to creditors

+

Cash flow to stockholders

$5,260

=

$3,464

+

$1,796

The cash flow identity balances, which is what we expect.

Titan Football Manufacturing had the following operating results for 2014: sales = $19,840; cost of goods sold = $13,920; depreciation expense = $2,310; interest expense = $315; dividends paid = $610. At the beginning of the year, net fixed assets were $16,800, current assets were $3,000, and current liabilities were $2,010. At the end of the year, net fixed assets were $19,940, current assets were $3,400, and current liabilities were $2,100. The tax rate for 2014 was 30 percent. (Enter your answers as directed, but do not round intermediate calculations.)

Requirement 1:

What is net income for 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Net income

$

Requirement 2:

What is the operating cash flow during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Operating cash flow

$

Requirement 3:

What is the cash flow from assets during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow from assets

$

Requirement 4:

Assume no new debt was issued during the year.

(a)

What is the cash flow to creditors during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow to creditors

$

(b)

What is the cash flow to stockholders during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow to stockholders

$

Explanation:1:

To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income Statement

Sales

$

19,840

Costs of goods sold

13,920

Depreciation

2,310

EBIT

$

3,610

Interest

315

Taxable income

$

3,295

Taxes (30%)

989

Net income

$

2,307

2:

The operating cash flow for the year was:

OCF = EBIT + Depreciation – Taxes

OCF = $3,610 + 2,310 – 989 = $4,932

To calculate the cash flow from assets, we also need the change in net working capital and net capital spending. The change in net working capital was:

Net capital spending = NFA_{end} – NFA_{beg} + Depreciation

Net capital spending = $19,940 – 16,800 + 2,310

Net capital spending = $5,450

3:

So, the cash flow from assets was:

Cash flow from assets = OCF – Change in NWC – Net capital spending

Cash flow from assets = $4,932 – 310 – 5,450

Cash flow from assets = –$829

The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in fixed assets and net working capital; it had to raise a net $829 in funds from its stockholders and creditors to make these investments.

4a:

The cash flow to creditors was:

Cash flow to creditors = Interest – Net new LTD

Cash flow to creditors = $315 – 0

Cash flow to creditors = $315

4b:

Rearranging the cash flow from assets equation, we can calculate the cash flow to stockholders as:

Cash flow from assets = Cash flow to stockholders + Cash flow to creditors