Question

Consider the following abbreviated financial statements for Cabo Wabo, Inc.: CABO WABO, INC. Partial Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Assets Liabilities and Owners' Equity 3,367 Current assets $ 3,151 $ Current liabilities $1,399 $2,078 14,060 Net fixed assets 14,511 Long-term debt 7,377 8,419 CABO WABO, INC. 2019 Income Statement $45,000 Sales 22,522 Costs Depreciation Interest paid 3,885 995 What is owners' equity for 2018 and 2019? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a.

Answer 1

Working as follows:

CABO WABO , INC
Partial Balance Sheets as of December 31, 2018 and 2019
	2018	2019		2018	2019
Assets			Liabilities and Owner's Equity:
Current assets	$3,151	$3,367	Current liabilities	$1,399	$2,078
Net fixed assets	$14,060	$14,511	Long-term debt	$7,377	$8,419
			Total Liabilities	$8,776	$10,497
			Owner's equity	$8,435	$7,381
Total Assets	$17,211	$17,878	Total Liabilities and Owner's Equity:	$17,211	$17,878

Accounting Equation:

Total Assets = Total Liabilities + Owner's Equiy

a)

Owner's equity 2018 = $8435

Owner's equity 2018 = $7381

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b)

Working Capital = Current assets - Current Liability

	2018	2019
Current assets	$3,151	$3,367
Less:
Current liabilities	($1,399)	($2,078)
Net Working capital	$1,752	$1,289

Change in Net working capital = $1289-$1752 = ($463)

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c-1)

Calculate Net capital spending as follows:

Net fixed assets 2019	$14,511
Less: Net fixed assets 2018	($14,060)
Add: Depreciation	$3,885
Net capital spending	$4,336

Net Capital Spending = Fixed assets bought - Fixed assets sold

$4,336 = $8038 - Fixed assets sold

Fixed assets sold = $3702

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c-2)

cash flow statement:

Calculate Operating cash flow:

Income statement
Sales	$45,000
Cost	($22,522)
Depreciation	($3,885)
EBIT	$18,593
Taxes ($18593 × 23%)	($4,276)
Net Income	$14,317
Operating cash flows:
EBIT	$18,593
Add: Depreciation	$3,885
Less: taxes	($4,276)
Cash flow from operations	$18,202

Cash flow from assets = Operating cash flow - Change in Net working capital - Net capital spending

= $18,202 - ($463) - $4336

= $14329

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d-1)

New net borrowing = Long term debt (Ending - opening)

= $8419-$7377 = $1042

Cash flow to creditors = Interest - Net new borrowing

= $995 - $1042 = $47

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d-2)

Net new borrowing = debt issued - Debt retired

$1042 = $2479 - Debt retired

Debt Retired = $1437