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Solutions To Problem Set A
Solutions To Problem Set A
2-1A. Belmond, Inc. Balance Sheet ASSETS Current assets Cash Accounts receivable Inventory Total current assets Gross buildings & equipment Accumulated depreciation Net buildings & equipment Total assets
LIABILITIES AND EQUITY Liabilities Notes payable Accounts payable Total current liabilities Long-term debt Total liabilities Equity Common stock Retained earnings Total equity Total liabilities and equity
Belmond, Inc. Income Statement Sales Cost of goods sold Gross profits General & admin expense Depreciation expense Total operating expense Operating income (EBIT) Interest expense Earnings before taxes Taxes Net income $ 12,800 5,750 $ 7,050 $ 850 500 $ $ $ $ 1,350 5,700 900 4,800 1,440 3,360
2-2A.
Sharp Mfg Company Balance Sheet ASSETS Cash Accounts receivables Inventories Total current assets Machinery and equipment Accumulated depreciation Net fixed assets Total assets
LIABILITIES & EQUITY Liabilities Notes payable Accounts payable Total current liabilities Long-term debt Total liabilities Equity Common stock Retained earnings Prior year Current year Total equity Total liabilities and equity
$ 100,000 90,000 $ 190,000 160,000 $ 350,000 $ 320,000 100,000 20,000 $ 440,000 $ 790,000
Sharp Mfg. Company Income Statement Sales Cost of goods sold Gross profits Operating expense Net income (Assume no taxes) $ 800,000 500,000 $ 300,000 280,000 $ 20,000
2-5A. Pamplin, Inc. Free cash flows from an asset perspective: Operating income (EBIT) Depreciation EBITDA Tax expense Less change in tax payable Cash taxes After-tax cash flows from operations Change in net working capital Change in current assets: Change in cash Change in accounts receivable Change in inventory Change in current assets Change in noninterest-bearing current debt: Change in accounts payable Change in net operating working capital Change in long-term assets: Purchase of fixed assets Free cash flows - asset perspective Free cash flows from a financing perspective: Interest received by investors Less change in interest payable Interest received by investors Repayment of long-term debt Increase in short-term debt Repurchase of common stock Common stock dividends Free cash flows - financing perspective:
(50,000) $ (50,000)
400,000 $ (10,000)
Note: The dividends were computed by comparing net income against the change in retained earnings. Net income was $180,000, but retained earnings increased only by $100,000; thus the balance was distributed in the form of dividends. Pamplin, Inc. had an after-tax operating cash flow of $440,000. Additionally, Pamplin acquired further financing though increasing short-term debt by $150,000. This cash was mainly used to purchase fixed assets of $400,000. The remainder was used to decrease
payables to suppliers by $50,000, pay interest of $60,000, and pay dividends back to the investors of $80,000.