Question

Rachel Corporation was started in 2015 with a cash investment of $20,000. You are presented with the following accounts for Rachel (in thousands):

	2016	2015		2016	2015
Net Sales	400	350	Retained earnings	180	130
Cost of Goods Sold	140	125	Inventory	118	85
Tax expense	55	50	Operating expenses	40	35
Long-term debt	50	0	Accounts payable	67	45
Allowance for doubtful accounts	2	1	Interest expense	15	0
Cash	25	5	Long-term deferred taxes	8	5
Depreciation expense	50	45	Plant and equipment (net)	200	100
Short-term notes payable	25	0	Accounts receivable (net)	7	10

Prepare a multiple-step income statement for both 2016 and 2015.

Prepare a classified balance sheet for both 2016 and 2015.

Was there a dividend paid in 2016? If so, what was the amount of the dividend?

For the most recent year, prepare the cash flow identity for Rachel Corporation.

For the most recent year, prepare the statement of cash flows for Rachel Corporation.

What conclusions might be drawn from what you have compiled?

Answer 1

INCOME STATEMENT

For the Year 2015

A

Net sales

350

B

Cost of goods sold

125

C=A-B

Gross Profit

225

D

Operating Expense

35

E=C-D

Operating Income before depreciation, interest and tax

190

F

Depreciation expense

45

G=E-F

Earning Before interest and taxes(EBIT)

145

H

Interest expense

0

I=G-H

Earning Before taxes(EBT)

145

J

Tax expense

50

K=I-J

Net Income

95

BALANCE SHEET

As on December 31, 2015

Assets:

Cash

5

Inventory

85

Accounts receivable

10

Total Current Assets

100

Plant and Equipment

100

Total Assets

200

Liabilities:

Accounts payable

45

Long termDeferred taxes

5

Total Liabilities

50

Stockholders Equity

20

Retained earning

130

Total stockholders equity

150

Total Liabilities and stockholders equity

200

INCOME STATEMENT

For the Year 2016

A

Net sales

400

B

Cost of goods sold

140

C=A-B

Gross Profit

260

D

Operating Expense

40

E=C-D

Operating Income before depreciation, interest and tax

220

F

Depreciation expense

50

G=E-F

Earning Before interest and taxes(EBIT)

170

H

Interest expense

15

I=G-H

Earning Before taxes(EBT)

155

J

Tax expense

55

K=I-J

Net Income

100

BALANCE SHEET

As on December 31, 2016

Assets:

Cash

25

Inventory

118

Accounts receivable

7

Total Current Assets

150

Plant and Equipment

200

Total Assets

350

Liabilities:

Accounts payable

67

Short term notes payable

25

Total Current Liabiliries

92

Long Term debt

50

Long Term Deferred taxes

8

Total Liabilities

150

Stockholders Equity

20

Retained earning

180

Total stockholders equity

200

Total Liabilities and stockholders equity

350

Calculation of Dividends paid in 2016:

Retained earning in the beginning of year

130

Net Income

100

Total retained earnings

230

Less: Retained earning at the end of year

180

Dividend paid in 2016

50

STATEMENT OF CASH FLOWS IN 2016

A

Net Income

100

B

Add: Non Cash expense(Depreciation)

50

Decrease/(Increase) in current Assets:

C

Decrease in Accounts receivable

3

(10-7)

D

Increase in Inventory

-33

85-118)

Increase/(Decrease) in current liabilities:

E

Increase in Accounts payable

22

(67-45)

F

Increase in Short term notes payable

25

(25-0)

G=A+B+C+D+E+F

Net cash flow from Operations

167

H

Investment Cash flow

-150

(Plant & Equipment (net) at beginning(100)-Depreciation(50)-Plant & equipment at the end(200)

I

Dividend Cash flow

-50

J

Cash flow from long term debt

50

K

Increase in deffered taxes

3

L=G+H+I+J+K

Total Cash Flow

20

Cash at the beginning of the year

5

Net Cash flow during 2016

20

Cash at the end of the year

25