Question

Consider the following abbreviated financial statements for Parrothead Enterprises:

   

PARROTHEAD ENTERPRISES 2017 and 2018 Partial Balance Sheets
Assets								Liabilities and Owners’ Equity
		2017			2018					2017			2018
Current assets	$	1,272		$	1,395			Current liabilities	$	559		$	607
Net fixed assets		5,050			6,109			Long-term debt		2,749			2,927

  

PARROTHEAD ENTERPRISES 2018 Income Statement
Sales	$	15,826
Costs		7,234
Depreciation		1,429
Interest paid		432

  

a.	What is owners' equity for 2017 and 2018? (Do not round intermediate calculations.)
b.	What is the change in net working capital for 2018? (Do not round intermediate calculations.)
c-1.	In 2018, Parrothead Enterprises purchased $2,628 in new fixed assets. How much in fixed assets did Parrothead Enterprises sell? (Do not round intermediate calculations.)
c-2.	In 2018, Parrothead Enterprises purchased $2,628 in new fixed assets. What is the cash flow from assets for the year? The tax rate is 23 percent. (Do not round intermediate calculations.)
d-1.	During 2018, Parrothead Enterprises raised $559 in new long-term debt. How much long-term debt must Parrothead Enterprises have paid off during the year? (Do not round intermediate calculations.)
d-2.	During 2018, Parrothead Enterprises raised $559 in new long-term debt. What is the cash flow to creditors? (Do not round intermediate calculations.)

  

Answer 1

a. Owners Equity for 2017 = Total Assets - Total Liabilities = ( 1272+5050) - ( 559+2749) = 3014
Owners Equity for 2018 = Total Assets - Total Liabilities = ( 1395+6109) - ( 607 + 2927) = 3970

b. Change in Net working capital in 2018 = ( Current asset 2018 - Current Liabilities 2018) -( Current asset 2017 - Current liabilities 2017) = (1395-607) -( 1272 - 559) = 75

c.-1 Fixed Assets in 2018 =Fixed assets in 2017 + New Assets bought - Assets Sold
6109 = 5050 + 2628 - Assets Sold
Asset Sold = 5050 + 2628 - 6109 = 1569

c-2) Taxes = (Sales - Cost - Depreciation - Interest)*Tax rate = (15,826 - 7234 - 1429 - 432)*23% = 1548.13
EBIT = Sales - Cost - Depreciation = 15826 - 7234 - 1429 = 7163

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Operating cash flow = EBIT - Taxes + Depreciation= 7163 - 1548.13 + 1429 = 7043.87
Cash Flow from Assets = Operating cash flow - Net fixed assets - Net Working Capital =7043.87 - (6109-5050) - 75 = 5909.87

d-1) Debt in 2018 = Debt in 2017 + New Debt raised - Paid Off Debt
Debt Paid Off = 2749 + 559 - 2927 = 381

d-2) Cash flow to creditors = Long Term Debt - Interest = 559 - 432 = 127