Graffiti Advertising, Inc., reported the following financial statements for the

Question

Graffiti Advertising, Inc., reported the following financial statements for the last two years 2016 Income Statement Sales Costs of goods sold Selling and administrative Depreciation EBIT Interest EBT Taxes Net income Dividends Addition to retained earnings $567,200 274,005 124,729 54,572 $ 113,894 19,384 $ 94,510 37,804 $56,706 $ 10,000 46,706 GRAFFITI ADVERTISING, INC Balance Sheet as of December 31, 2015 Cash Accounts receivable Inventory Current assets $ 9,500 14,504 $ 24,004 S 13,360 Accounts payable 18,990 Notes payable 13,798 Current liabilities $ 46,148 $136,480 $230,210 $390,694 Long-term debt Net fixed assets Total assets $ 344,546 Owner's equity S390,694 Total liabilities and owners' equity GRAFFITI ADVERTISING, INC Balance Sheet as of December 31, 2016 Cash Accounts receivable Inventory Current assets S 10,516 16,470 S 26,986 $14,346 Accounts payable 21,095 Notes payable 22,758 Current liabilities $ 58,199 152,400 S 285,120 Long-term debt Net fixed assets Total assets $406,307 Owners equity $464,506 Total liabilities and owners' equity $464,506

Explanation / Answer

Solution: a. Operating Cash Flow                 $130,662 Working Notes: Operating Cash flow = EBIT + Depreciation - Taxes = 113,894 + 54,572 - 37,804 = $130,662 b. Change in Net Working Capital $9,069 Working Notes: Change in Net Working Capital =Net working capital at end - Net working capital at beginning =(current asset at end - current liabilities at end) - (current asset at beg- current liabilities at beg)    =($58,199 -26,986) - (46,148 - 24,004) =$31,213 - $22,144 =$9,069 c. Net capital spending   $                            116,333 Working Notes: Net capital spending = Depreciation + Increase in fixed assets Net capital spending = Depreciation + (net fixed assets at end - net fixed assets at beg.) Net capital spending = 54,572 + (406,307 - 344,546) Net capital spending = 54,572 + 61,761 Net capital spending = $116,333 d. Cash flow from assets       $ 5,260 Working Notes: Cash flow from assets = Operating cash flow - Change in NWC - Net capital spending Cash flow from assets = $130,662 - $9,069 - $116,333 Cash flow from assets = $5,260 e. Cash flow to creditors              $   3,464 Working Notes: Cash flow to creditors = Interest paid –New long-term debt Cash flow to creditors = Interest paid –(Long-term debt at end–Long-term debt at beg) Cash flow to creditors = $19,384 –($152,400–$136,480) Cash flow to creditors = $19,384 –$15,920 Cash flow to creditors = $3,464 f. Cash flow to Stockholders      $ 1,796 Working Notes: Cash flow to Stockholders      = Dividends - Net new equity = $10,000 - $8,204 = $1,796 New equity = Ending equity –Beginning equity –Addition to retained earnings New equity = $285,120 - $230,210 -46,706 New equity = 8,204 Notes: lets check our above calculation are correct. Cash flow from assets = Cash flow to creditors + Cash flow to stockholders 5,260 = 3,464 + 1,796 5,260 = 5,260 Please feel free to ask if anything about above solution in comment section of the question.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.