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 = NFAend – NFAbeg + 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 = NFAend – NFAbeg + 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
