Question

C. Construct the statement of cash flows for the most recent year(last photo.) (please give formulas or equations)

a. Britton String Corp. manufactures specialty strings for musical instruments and tennis racquets. Its most recent  sales were $880 million; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $300 million; depreciation amounted to 10% of net fixed assets; interest expenses were $22 million; the state-plus-federal corporate tax rate was 25%; and it paid 40% of its net income out in dividends.  Given this information, construct its income statement. Also calculate total dividends and the addition to retained earnings. Report all dollar figures in millions.
							The input information required for the problem is outlined in the "Key Input Data" section below.  Using this data and the balance sheet above, we constructed the income statement shown below.
							Key Input Data for Britton String Corp.				2020
							(Millions of dollars)
Sales Revenue				$880
Expenses (excluding depreciation) as a percent of sales				85.0%
Net fixed assets				$300
Depr. as a % of net fixed assets				10.0%
Tax rate				25.0%
Interest expense				$22
Dividend Payout Ratio				40%
Britton String Corp.: Income Statement				2020
(Millions of dollars)
Sales				$880
Operating costs excluding depreciation				$748
EBITDA				$132
Depreciation (Cumberland has no amortization charges)				30
EBIT				$102
Interest expense				22
EBT				$80
Taxes (25%)				$20
Net income				$60
Common dividends				$24
Addition to retained earnings				$36
b. Britton String’s partial balance sheets follow. Britton issued $36 million of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity.
							Dollar value of common stock issued (in millions of dollars)				$36
Britton String Corp: December 31 Balance Sheets
(Millions of dollars)
				2020	2019
Assets
Cash and cash equivalents				$70	$60
Short-term investments				$46	$42
Accounts Receivable				$120	$140
Inventories				$264	$196
Total current assets				$500	$438
Net fixed assets				$300	$262
Total assets				$800	$700
Liabilities and equity
Accounts payable				$73	$64
Accruals				$49	$60
Notes payable				$30	$39
Total current liabilities				$152	$163
Long-term debt				$217	$178
Total liabilities				$369	$341
Common stock				$285	$249
Retained earnings				$146	$110
Total common equity				$431	$359
Total liabilities and equity				$800	$700
			Always check for balancing (these should be zero):	$0.0000	$0.0000
c.  Construct the statement of cash flows for the most recent year.
Statement of Cash Flows
(in thousands of dollars)
				2020
Operating Activities
Net Income				$60
Adjustments:
Noncash adjustment:
Depreciation				$30
Due to changes in working capital:
Due to change in accounts receivable
Due to change in inventories
Due to change in accounts payable
Due to change in accruals
Net cash provided (used) by operating activities
Investing Activities
Cash used to acquire gross fixed assets
Due to change in short-term investments
Net cash provided (used) by investing activities
Financing Activities
Due to change in notes payable
Due to change in long-term debt
Due to change in common stock
Payment of common dividends
Net cash provided (used) by financing activities
Net increase/decrease in cash
Add: Cash balance at the beginning of the year
Cash balance at the end of the year
Check: cash balance in statement of cash flows should equal the cash on balance sheets; this value should be zero:				$70.000

Answer 1

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$                  60
Adjustments
Depreciation	$                  30
Change In current assets & Liabilities
Decrease in Accounts Receivable	$                  20			=140-120
Increase in Inventories	$                (68)			=196-264
Increase in Accounts payable	$                    9			=73-64
Decrease in Accruals	$                (11)			=49-60
Total Adjustments		$                (20)
Net Cash from operating activities			$                  40
Cash flow from Investing Activities
Cash used to acquire fixed assets		$                (68)		=262-300-30
Purchase of Short term Investments		$                  (4)		=42-46
Net Cash used in investing activities			$                (72)
Cash flow from Financing Activities
Repayment of Notes Payable		$                  (9)		=30-39
Issue of long term debt		$                  39		=217-178
Issue of Common Stock		$                  36		=285-249
Payment of cash dividends		$                (24)
Net Cash from financing activities			$                  42
Net Increase in cash			$                  10
Cash, beginning of the year			$                  60
Cash, ending of the year			$                  70