Question

Consider the following abbreviated financial statements for Cabo Wabo, Inc.: CABO WABO, INC. Partial Balance Sheets as of December 31, 2015 and 2016 2015 2016 2015 2016 Assets Liabilities and Owners’ Equity Current assets $ 2,689 $ 2,842 Current liabilities $ 1,139 $ 1,682 Net fixed assets 12,397 12,956 Long-term debt 6,700 7,850 CABO WABO, INC. 2016 Income Statement Sales $ 39,930 Costs 20,018 Depreciation 3,388 Interest paid 633 a. What is owners’ equity for 2015 and 2016? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Owners’ equity 2015 $ 2016 $ b. What is the change in net working capital for 2016? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Change in net working capital $ c. In 2016, the company purchased $5,691 in new fixed assets. The tax rate is 30 percent. 1. How much in fixed assets did the company sell? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Fixed assets sold $ 2. What is the cash flow from assets for the year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Cash flow from assets $ d. During 2016, the company raised $1,735 in new long-term debt. 1. What is the cash flow to creditors? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Cash flow to creditors $ 2. How much long-term debt must the company have paid off during the year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Debt retired

Answer 1

	2015	2016
Assets
Current Assets	2689	2842
Net Fixed Assets	12397	12956
Total Assets	15086	15798
Liabilities & Owners Equity
Current Liabilities	1139	1682
Long Term Debt	6700	7850
Owners Equity	7247	6266	Sol a: This is calculated by deducting Current Liabilities & Long Term Debt from Total Assets
Total Liabilties & Owners Equity	15086	15798
Income Statement		2016
Sales		39930
Less: Costs		20018
EBIT		19912
Less: Depreciation		3388
Less: Interest Paid		633
Income before Tax		15891
Less: Tax @ 30%		-4767
Net Income		11123.7
Sol b: Change in Net Working Capital for 2016 = NWC 2016 - NWC 2015= 1160-1550 = -390
Net Working Capital 2016 = Current Assets 2016 - Current Liabilities 2016. i.e. 2842-1682 = 1160
Net Working Capital 2015 = Current Assets 2015 - Current Liabilities 2015. i.e. 2689-1139 = 1550
Sol c: Net Fixed Assets 2015 is 12397 and if new Fixed Asset Purchased = 5691 then total Gross Fixed Assets = 12397+5691 = 18088
If we give depreciation effect in 2016 to Gross Fixed Assets above we would get = 18088 - 3388 = 14700
Net Fixed Assets in 2016 is 12956 therefore from 14700 to reach to 12956 it implies that some Fixed Assets are Sold.
Therefore Fixed Assets Sold in 2016 = 14700 - 12956 = 1744.
Sol (d): Cash flow from the Assets in 2016 = Operating Cash Flow-Capital Spending - Increase in NWC
Operating Cash Flows = EBIT + Depreciation - Taxes = 19912 + 3388 - 4767 = 18533
Capital Spending = Net Fixed Assets 2016 - Net Fixed Assets 2015 + Depreciation 2016 = 12956 - 12397 + 3388 = 3947
Increase in NWC in 2016 = NWC 2016 - NWC2015 = 1160 - 1550 = -390
Thus Cash Flow from Assets in 2016 = 18533-3947-(-390) = 14976
Sol e : Cash Flow to Creditors in 2016 = Interest Expense - Long Term Debt in 2016 + Long Term Debt in 2015
Thus Cash Flow to Creditors = 633 - 7850 + 6700 = -517
Sol f: Company had 6700 Long Term Debt in 2015 if we add new Long Term Debt of 1735 we would have total Long Term Debt of = 6700+1735 = 8435
The Long Term Debt in 2016 is instead = 7850 this means some Long Term Debt had been paid off i.e. Retired
Thus Retired Long Term Debt = 8435-7850 = 585