Question

In: Finance

Fill in the blanks in the income statement and balance sheet and show that Cash Flow...

  1. Fill in the blanks in the income statement and balance sheet and show that Cash Flow Identity holds.

  2. If the company sold $300 worth of fixed assets, how much fixed assets were sold?

  3. Assuming that the company had either seasoned equity offering or repurchase, which one did the company have?

  4. If the company borrowed $55 in 2018, how much of the Long-term debt was paid in 2018?

BALANCE SHEET - 2017 & 2018

ASSETS

LIABILITIES and OWNERS EQUITY

2017

2018

2017

2018

Current Assets

Current Liabilities

Cash

200

210

Accounts Payable

180

185

A/R

300

290

Notes Payable

230

195

Inventory

250

300

Total Current Liabilities

410

380

Total Current Assets

750

800

Long-Term Debt

245

……

Fixed Assets

Fixed Assets

500

…..

Owner's Equity

595

715

Common Stock

295

335

Retained Earnings

300

380

TOTAL ASSETS

1250

……

TOTAL LIABILITIES and OWNERS EQUITY

1250

1350


INCOME STATEMENT - 2018

Sales

4500

Cost

2950

Depreciation

300

Earnings before Interest and Tax (EBIT)

1250

Interest

350

Earnings before Tax (EBT) - Taxable Income

…….

Tax (30%)

…….

Net Income

…….

Dividend

…….

Add. To Retained Earnings

…….

Solutions

Expert Solution

Answer a.

2018:

Total Assets = Total Liabilities and Owner’s Equity
Total Assets = $1,350

Fixed Assets = Total Assets - Current Assets
Fixed Assets = $1,350 - $800
Fixed Assets = $550

Total Liabilities and Owner’s Equity = Total Liabilities + Owner’s Equity
$1,350 = Total Liabilities + $715
Total Liabilities = $635

Total Liabilities = Current Liabilities + Long-term Debt
$635 = $380 + Long-term Debt
Long-term Debt = $255

Addition to Retained Earnings = Ending Retained Earnings - Beginning Retained Earnings
Addition to Retained Earnings = $380 - $300
Addition to Retained Earnings = $80

Earnings before Tax = Earnings before Interest and Tax - Interest
Earnings before Tax = $1,250 - $350
Earnings before Tax = $900

Tax = 30% * Earnings before Tax
Tax = 30% * $900
Tax = $270

Net Income = Earnings before Tax - Tax
Net Income = $900 - $270
Net Income = $630

Dividends = Net Income - Addition to Retained Earnings
Dividends = $630 - $80
Dividends = $550

Answer b.

Ending Fixed Assets = Beginning Fixed Assets + Fixed Assets Purchased - Fixed Assets Sold
$550 = $500 + Fixed Assets Purchased - $300
Fixed Assets Purchased = $350

Fixed assets sold is $300

Answer c.

Increase in Common Stock = Ending Common Stock - Beginning Common Stock
Increase in Common Stock = $335 - $295
Increase in Common Stock = $40

Company seasoned equity offering of $40

Answer d.

Ending Long-term Debt = Beginning Long-term Debt + Long-term Debt Borrowed - Long-term Debt Repaid
$255 = $245 + $55 - Long-term Debt Repaid
Long-term Debt Repaid = $45


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