Question

Cardinal Industries had the following operating results for 2018: Sales = $33,510; Cost of goods sold = $23,820; Depreciation expense = $5,917; Interest expense = $2,670; Dividends paid = $1,924. At the beginning of the year, net fixed assets were $19,860, current assets were $6,998, and current liabilities were $3,944. At the end of the year, net fixed assets were $24,430, current assets were $8,636, and current liabilities were $4,601. The tax rate for 2018 was 24 percent.

  

a.	What is net income for 2018? (Do not round intermediate calculations.)
b.	What is the operating cash flow for 2018? (Do not round intermediate calculations.)
c.	What is the cash flow from assets for 2018? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)
d-1.	If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.)
d-2.	If no new debt was issued during the year, what is the cash flow to stockholders? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

Answer 1

Answer a
Calculation of net income for 2018
Sales	$33,510.00
Less : Cost of goods sold	$23,820.00
Gross Margin	$9,690.00
Less : Depreciation Expense	$5,917.00
Net Operating Income	$3,773.00
Less : Interest Expense	$2,670.00
Profit before tax	$1,103.00
Less : Tax @ 24%	$264.72
Net Income	$838.28
Answer b
Operating cash flow for 2018
Net Income	$838.28
Add : Depreciation	$5,917.00
Operating cash flow for 2018	$6,755.28
Answer c
Cash flow from assets = Operating cash flow + Change in working capital + Change in fixed assets
Change in working capital
	Beginning	End	Change
Current assets	$6,998.00	$8,636.00
Less : Current Liabilities	$3,944.00	$4,601.00
Working Capital	$3,054.00	$4,035.00	-$981.00
Change in fixed assets
	Beginning	End	Change
Net Fixed assets	$19,860.00	$24,430.00
Add : Depreciation		$5,917.00
Net Fixed assets	$19,860.00	$30,347.00	-$10,487.00
Cash flow from assets = $6755.28 - $981 - $10487 = -$4,712.72
Answer d
Cash flow creditors = Current liabilities at the end - Current liabilities at the beginning
Cash flow creditors = $4601 - $3944 = $657
Answer e
Balance sheet
	Beginning	End
Net Fixed Assets	$19,860.00	$24,430.00
Current assets	$6,998.00	$8,636.00
Total Assets	$26,858.00	$33,066.00
less : Current liabilities	$3,944.00	$4,601.00
Equity Plus debt	$22,914.00	$28,465.00
Calculation of issue of common stock
Equity plus debt at the end	$28,465.00
Less : Net Income	$838.28
Add : Dividend paid	$1,924.00
Less : Equity plus debt at the beginning	$22,914.00
Issue of common stock	$6,636.72
Cash flow to stockholders = Dividend paid + Issue of common stock = -$1924 + $6636.72 = $4,712.72