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# Use the following information for ABC Inc. the answer the following questions (the applicable tax rate...

Use the following information for ABC Inc. the answer the following questions (the applicable tax rate is 34%):

 2017 2018 Sales 23,146,000 25,872,000 Depreciation 3,322,000 3,472,000 Cost of Goods Sold 7,958,000 9,414,000 Other Expenses 1,892,000 1,648,000 Interest 1,552,000 1,852,000 Cash 12,134,000 12,932,000 Accounts Receivable 16,068,000 18,854,000 Short-term Notes Payable 3,422,000 2,294,000 Long-term Debt 40,640,000 49,392,000 Net Fixed Assets 101,776,000 108,546,000 Accounts Payable 8,768,000 9,288,000 Inventory 28,566,000 30,576,000 Dividends 2,822,000 3,236,000
1. Draw up a statement of comprehensive income and statement of financial position for this company for 2017 and 2018.
2. Prepare the cash flow statement.
3. For 2018, calculate the cash flow from assets, cash flow to creditors, and cash flow to shareholders.

## Solutions

##### Expert Solution

 a) STATEMENT OF COMPREHENSIVE INCOME 2017 2018 Sales $2,31,46,000$   2,58,72,000 Cost of goods sold $79,58,000$       94,14,000 Gross profit $1,51,88,000$   1,64,58,000 Operating expenses: Depreciation $33,22,000$       34,72,000 Other expenses $18,92,000$       16,48,000 Total operating expenses $52,14,000$       51,20,000 Operating profit $99,74,000$   1,13,38,000 Interest expense $15,52,000$       18,52,000 Income before taxes $84,22,000$       94,86,000 Tax at 34% $28,63,480$       32,25,240 Net income $55,58,520$       62,60,760 Dividends $28,22,000$       32,36,000 Addtion to retained earnings $27,36,520$       30,24,760 STATEMENT OF FINANCIAL POSITION Assets Current assets: Cash $1,21,34,000$   1,29,32,000 Accounts receivable $1,60,68,000$   1,88,54,000 Inventory $2,85,66,000$   3,05,76,000 Total current assets $5,67,68,000$   6,23,62,000 Net fixed assets $10,17,76,000$ 10,85,46,000 Total assets $15,85,44,000$ 17,09,08,000 Total liabilities and stockholders' equity Current liabilities: Accounts payable $87,68,000$       92,88,000 Short term notes payable $34,22,000$       22,94,000 Total current liabilities $1,21,90,000$   1,15,82,000 Long term debt $4,06,40,000$   4,93,92,000 Total liabilities $5,28,30,000$   6,09,74,000 Stockholders' equity [Plug in figure] $10,57,14,000$ 10,99,34,000 [158544000-52830000] [170908000-60974000] Total liabilities and stockholders' equity $15,85,44,000$ 17,09,08,000 b) STATEMENT OF CASH FLOWS-2018 Cash flow from operating activities: Net income $62,60,760 Adjustements to reconcile net income with cash flow from operating activities: Depreciation$          34,72,000 Increase in accounts receivable $-27,86,000 Increase in inventory$        -20,10,000 Increase in accounts payable $5,20,000$       -8,04,000 Net cash from operating activities $54,56,760 Cash flow from investing activities: Increase in fixed assets (108546000-101776000+3472000)$    -1,02,42,000 Net cash used by investing activities $-1,02,42,000 Cash flow from financing activities: Payment of dividends$        -32,36,000 Issue of common stock [109934000-105714000-3024760] $11,95,240 Payment of ST notes payable$        -11,28,000 Raising of long term debt $87,52,000 Net cash from financing activities$       55,83,240 Increase in cash $7,98,000 Beginning balance of cash$   1,21,34,000 Ending balance of cash $1,29,32,000 c) Cash flow from assets = OCF-Net capital spending-Change in NWC OCF = EBIT+Depreciation-taxes = 11338000+3472000-3225240 =$      1,15,84,760 Net capital spending = 108546000-101776000+3472000 = $1,02,42,000 Change in NWC = (62362000-11582000)-(56768000-12190000) =$          62,02,000 Cash flow from assets $-48,59,240 Cash flow to creditors = Interest expense+Beginning long term debt-Ending long term debt = 1852000+40640000-49392000 =$        -69,00,000 Cash flow to stock holders = Dividend-New equity = 3236000-1195240 = $20,40,760 Cash flow to creditors and stockholders$        -48,59,240