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

Question

Consider the following abbreviated financial statements for Cabo Wabo, Inc.: (Enter your answer as directed, but do not round intermediate calculations.) CABO WABO, INC. Partial Balance Sheets as of December 31, 2013 and 2014 2013 2014 2013 2014 Assets Liabilities and Owners’ Equity Current assets $ 2,801 $ 2,926 Current liabilities $ 1,083 $ 1,640 Net fixed assets 12,593 13,138 Long-term debt 6,518 7,794 CABO WABO, INC. 2014 Income Statement Sales $ 40,210 Costs 20,130 Depreciation 3,486 Interest paid 675 Requirement 1: What is owners’ equity for 2013 and 2014? Owners’ equity 2013 $ 7559 2014 $ Requirement 2: What is the change in net working capital for 2014? (Negative amount should be indicated by a minus sign.) Change in net working capital $ Requirement 3: In 2014, Cabo Wabo purchased $6,041 in new fixed assets. The tax rate is 30 percent. (a) How much in fixed assets did Cabo Wabo sell? (Round your answer to the nearest whole dollar amount (e.g., 32).) Fixed assets sold $ (b) What is the cash flow from assets for the year? (Round your answer to the nearest whole dollar amount (e.g., 32).) Cash flow from assets $ Requirement 4: During 2014, Cabo Wabo raised $1,945 in new long-term debt. (a) What is the cash flow to creditors? (Negative amount should be indicated by a minus sign. (Round your answer to the nearest whole dollar amount (e.g., 32).) Cash flow to creditors $ (b) How much long-term debt must Cabo Wabo have paid off during the year? (Round your answer to the nearest whole dollar amount (e.g., 32).) Debt retired $

Explanation / Answer

Since, there are multiple parts to the question and requirement 3 has 2 parts, the first four parts (Requirement 1, Requirement 2 and Requirement 3 (both and b) have been answered.

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Part 1)

The owner's equity for each year is calculated with the use of following table:

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Part B)

The change in net working capital for 2014 is calculated as follows:

Change in Net Working Capital = Net Working Capital 2014 - Net Working Capital 2013 = 1,286 - 1,718 = -$432

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Part 3)

a)

To calculate fixed assets sold, we need to determine the amount of capital spending as follows:

Net Capital Spending = Ending Fixed Assets - Beginning Fixed Assets + Depreciation = 13,138 - 12,593 + 3,486 = $4,031

Now, the fixed assets sold can be calculated with the use of another formula for capital spending as follows:

Net Capital Spending = Fixed Assets Purchased - Fixed Assets Sold

4,031 = 6,041 - Fixed Assets Sold

Rearranging values, we get,

Fixed Assets Sold = 6,041 - 4,031 = $2,010

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b)

To calculate cash flow from assets, we need to determine operating cash flow as follows:

Operating Cash Flow = EBIT + Depreciation - Taxes = 16,594 + 3,486 - 4,775.70 = $15,304.30

Now, we can calculate cash flow from assets with the use of following formula:

Cash Flow from Assets = Operating Cash Flows - Change in Net Working Capital - Net Capital Spending

Using the values calculated above, we get,

Cash Flow from Assets = 15,304.30 - (-432) - 4,031 = $11,705.30 or $11,705

2013 2014 Total Assets (Current Assets + Net Fixed Assets) 15,296 (2,801+12,495) 16,064 (2,926+13,138) Less Total Liabilities (Current Liabilities + Long Term Debt) 7,601 (1,083+6,518) 9,434 (1,640+7,794) Owner's Equity $7,695 $6,630

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