Question

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 $ 1,308 $ 1,443 Current liabilities $ 601 $ 643 Net fixed assets 5,092 6,175 Long-term debt 2,815 2,999 WESTON ENTERPRISES 2019 Income Statement Sales $ 16,114 Costs 7,288 Depreciation 1,465 Interest paid 456

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 $2,700 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 $2,700 in new fixed assets. What is the cash flow from assets for the year? The tax rate is 21 percent. (Do not round intermediate calculations.)

d-1. During 2019, Weston Enterprises raised $589 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 $589 in new long-term debt. What is the cash flow to creditors? (Do not round intermediate calculations.)

Answer 1

a. Total assets = Total Liabilities + Shareholder's equity

Shareholder's equity = Total assets - Total Liabilities

Total assets 2018	=	$1,308 + 5,092 = $6,400
Total liabilities 2018	=	$ 601 + 2,815 = $3,416
Owners’ equity 2018	=	$6,400 - 3,416 = $2,984

Total assets 2019	=	$ 1,443 + 6,175 = $7,618
Total liabilities 2019	=	$ 643 + 2,999 = $3,642
Owners’ equity 2019	=	$7,618 - 3,642 = $3,976

Shareholder's equity in 2018 = $2,984

Shareholder's equity in 2019 = $3,976

b. Change in net working capital for 2019 :

Net working capital = Current assets - Current liabilities

Net working capital 2018 = $1,308 - $601 = $707

Net working capital 2019 = $1,443 - $643 = $800

Change in Net working capital = Net working capital 2019 – Net working capital 2018 = $800 - $707 = $93

c-1. Calculation of fixed assets sold :

Net capital spending = Net fixed assets 2019 – Net fixed assets 2018 + Depreciation

Net capital spending = $6,175 – $5,092 + $1,465 = $2,548

So, the company had a net capital spending cash flow of $2,548. We also know that net capital spending is:

Net capital spending = Fixed assets bought – Fixed assets sold

Hence, $2,548 = $2,700 – Fixed assets sold

Fixed assets sold = $2,700 – $2,548 = $152

c-2. To calculate the cash flow from assets, the operating cash flow must be calculated first. The income statement is:

Income Statement
Sales	$16,114
Costs	$7,288
Depreciation expense	$1,465
EBIT	$7,361
Interest expense	$456
EBT	$6,905
Taxes (21%)	$1,450
Net income	$5,455

Operating cash flow is:

Operating cash flow = EBIT + Depreciation – Taxes = $7,361 + $1,465 - $1,450 = $7,376

Cash flow from assets is:

Cash flow from assets = Operating cash flow – Change in Net working capital – Net capital spending

Cash flow from assets = $7,376 - $93 - $2,548 = $4,735

d-1. Calculation of debt paid off :

Net new borrowing = Long-term debt 2019 – Long-term debt 2018

Net new borrowing = $2,999 - $2,815

Net new borrowing = $184

Net new borrowing = Debt issued – Debt retired

$184 = $589 - Debt retired

Debt retired = $589 – $184

Debt retired = $405

d-2. Claculation of cash flow to creditors :

Cash flow to creditors = Interest paid – Net new borrowing

Cash flow to creditors = $ 456 – $184

Cash flow to creditors = $272