Consider the following abbreviated financial statements for Cabo Wabo, Inc.: CAB

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 $ 2,785 $ 2,914 Current liabilities $ 1,091 $ 1,646 Net fixed assets 12,565 13,112 Long-term debt 6,544 7,802 CABO WABO, INC. 2016 Income Statement Sales $ 40,170 Costs 20,114 Depreciation 3,472 Interest paid 669 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 $5,991 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 $1,915 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 $

Explanation / Answer

(a.)

CALCULATION OF OWNERS EQUITY FOR 2015 & 2016

(b.)

(1.) HERE WE HAVE TO CALCULATE NWC FOR 2016

NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

=$2914 - $1646

=$1268

(2.) CHANGE IN NET WORKING CAPITAL = ENDING NWC - BEGINNING NWC

= ( $2914 - $1646 ) - ( $2785 - $1091 )

= $1268 - $1694

= (-)$426

(c.)

(1.) CALCULATION OF FIXED ASSETS SOLD IN 2016

NOTE : IT HAS BEEN ASSUMED THAT THE SALE OF FIXED ASSETS FOR THE YEAR IS MADE BY WAY OF CASH A/C.  

(2.) CASH FLOW FROM ASSETS FOR THE YEAR

CFFS = OCF - NCS - CHANGE IN NET WORKING CAPITAL (EQUATION -1)

OCF = EBIT + DEPRECIATION - TAXES

=( ($40170 - $20114 -$3472 ) + $3472 - $4775)

= $15281

NCS = ENDING NET FA - BEGINNING NET FA + DEPRECIATION

=$13112 -$12565

=$547

CHANGE IN NET WORKING CAPITAL =ENDING NWC - BEGINNING NWC

=($2914 -$1646) - ($2785 -$1091)

= $1268 -$1694

=(-)$426

PUTTING ABOVE VALUES IN EQUATION 1 WE HAVE

=$15281- $547 -(-)$426

=$15160

NOTE : $4775 = $40170 -$20114 -$3472 -$669

=$15915*30%

=$4775

(d.)

(1.) CALCULATION OF CASH FLOW TO CREDITORS

INTEREST PAYMENT - (CL0SING LONG TERM DEBT - BEGINNING LONG TERM DEBT)

= $669 - ($7802 - $6544)

= (-) $589

  

(2.) CALCULATION OF LONG TERM DEBT THE COMPANY MUST HAVE PAID OFF

= CLOSING LONG TERM DEBT + LONG TERM DEBT RAISED - BEGINNING LONG TERM DEBT

=$7802 + $1915 - $6544

= $3173

LIABILITIES AMOUNT( IN $) ASSETS AMOUNT( IN $) 2015 2016 2015 2016 OWNERS EQUITY (B/F.) 7715 5678 NET FIXED ASSETS 12565 13112 LONG TERM DEBTS 6544 8702 CURRENT ASSETS 2785 2914 CURRENT LIABILITIES 1091 1646 15350 16026 15350 16026

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