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Consider the following abbreviated financial statements for Weston Enterprises: WESTON ENTERPRISES 2018 and 2019 Partial Balance...

Consider the following abbreviated financial statements for Weston Enterprises: WESTON ENTERPRISES 2018 and 2019 Partial Balance Sheets Assets Liabilities and Owners’ Equity 2018 2019 2018 2019 Current assets $ 1,266 $ 1,387 Current liabilities $ 552 $ 601 Net fixed assets 5,043 6,098 Long-term debt 2,738 2,915 WESTON ENTERPRISES 2019 Income Statement Sales $ 15,778 Costs 7,225 Depreciation 1,423 Interest paid 428 a. What is owners' equity for 2018 and 2019? (Do not round intermediate calculations.) b. What is the change in net working capital for 2019? (Do not round intermediate calculations.) c-1. In 2019, Weston Enterprises purchased $2,616 in new fixed assets. How much in fixed assets did the company sell? (Do not round intermediate calculations.) c-2. In 2019, Weston Enterprises purchased $2,616 in new fixed assets. What is the cash flow from assets for the year? The tax rate is 22 percent. (Do not round intermediate calculations.) d-1. During 2019, Weston Enterprises raised $554 in new long-term debt. How much long-term debt must Weston Enterprises have paid off during the year? (Do not round intermediate calculations.) d-2. During 2019, Weston Enterprises raised $554 in new long-term debt. What is the cash flow to creditors? (Do not round intermediate calculations)

Solutions

Expert Solution

Answer a.

2018:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($1,266 + $5,043) - ($552+ $2,738)
Owners’ Equity = $3,019

2019:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($1,387+ $6,098) - ($601+ $2,915)
Owners’ Equity = $3,969

Answer b.

Change in Net Working Capital = Net Working Capital, 2019 - Net Working Capital, 2018
Change in Net Working Capital = (Current Assets, 2019 - Current Liabilities, 2019) - (Current Assets, 2018 - Current Liabilities, 2018)
Change in Net Working Capital = ($1,387- $601) - ($1,266 - $552)
Change in Net Working Capital = $72

Answer c-1.

Net Capital Spending = Net Fixed Assets, 2019 + Depreciation - Net Fixed Assets, 2018
Net Capital Spending = $6,098+ $1,423 - $5,043
Net Capital Spending = $2,478

Net Capital Spending = Purchase of Fixed Assets - Sale of Fixed Assets
$2,478 = $2,616 - Sale of Fixed Assets
Sale of Fixed Assets = $138

Answer c-2.

EBIT = Sales - Costs - Depreciation
EBIT = $15,778 - $7,225 - $1,423
EBIT = $7,130

EBT = EBIT - Interest Paid
EBT = $7,130- $428
EBT = $6,702

Taxes = EBT * Tax Rate
Taxes = $6,702* 22%
Taxes = $1,474.44 or 1474

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $7,130+ $1,423 - $1,474
Operating Cash Flow = $7,079

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $7,079- $2,478 - $72
Cash Flow from Assets = $4,529

Answer d-1.

Net New Long-term Debt = Long-term Debt, 2019 - Long-term Debt, 2018
Net New Long-term Debt = $2,915- $2,738
Net New Long-term Debt = $177

Net New Long-term Debt = Long-term Debt raised - Long-term Debt repaid
$177= $554- Long-term Debt repaid
Long-term Debt repaid = $377

Answer d-2.

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $428- $177
Cash Flow to Creditors = $251


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