Question

Please, try not to use Excel or any Computer to solve this problem. Use formulas, math and written explanation to solve the problem. Thanks.

Consider the following abbreviated financial statements for Weston Enterprises: WESTON ENTERPRISES 2018 and 2019 Partial Balance Sheets Assets Liabilities and Owners' Equity 2018 2019 2018 2019 Current assets $ 1,212 $ 1,315 Current liabilities $ 489 $ 547 Net fixed assets 4,980 5,999 Long-term debt 2,639 2,807 $ 15,346 WESTON ENTERPRISES 2019 Income Statement Sales Costs 7,144 Depreciation 1,369 Interest paid 392 b. a. What is owners' equity for 2018 and 2019? (Do not round intermediate calculations.) What is the change in net working capital for 2019? (Do not round intermediate calculations.) C-1. In 2019, Weston Enterprises purchased $2,508 in new fixed assets. How much in fixed assets did the company sell? (Do not round intermediate calculations.)

Answer 1

Answer a.

2018:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($1,212 + $4,980) - ($489 + $2,639)
Owners’ Equity = $3,064

2019:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($1,315 + $5,999) - ($547 + $2,807)
Owners’ Equity = $3,960

Answer b.

Change in Net Working Capital = Net Working Capital, 2019 - Net Working Capital, 2018
Change in Net Working Capital = (Current Assets, 2019 - Current Liabilities, 2019) - (Current Assets, 2018 - Current Liabilities, 2018)
Change in Net Working Capital = ($1,315 - $547) - ($1,212 - $489)
Change in Net Working Capital = $45

Answer c-1.

Net Capital Spending = Net Fixed Assets, 2019 + Depreciation - Net Fixed Assets, 2018
Net Capital Spending = $5,999 + $1,369 - $4,980
Net Capital Spending = $2,388

Net Capital Spending = Purchase of Fixed Assets - Sale of Fixed Assets
$2,388 = $2,508 - Sale of Fixed Assets
Sale of Fixed Assets = $120

Answer c-2.

EBIT = Sales - Costs - Depreciation
EBIT = $15,346 - $7,144 - $1,369
EBIT = $6,833

EBT = EBIT - Interest Paid
EBT = $6,833 - $392
EBT = $6,441

Taxes = EBT * Tax Rate
Taxes = $6,441 * 21%
Taxes = $1,353

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $6,833 + $1,369 - $1,353
Operating Cash Flow = $6,849

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $6,849 - $2,388 - $45
Cash Flow from Assets = $4,416

Answer d-1.

Net New Long-term Debt = Long-term Debt, 2019 - Long-term Debt, 2018
Net New Long-term Debt = $2,807 - $2,639
Net New Long-term Debt = $168

Net New Long-term Debt = Long-term Debt raised - Long-term Debt repaid
$168 = $509 - Long-term Debt repaid
Long-term Debt repaid = $341

Answer d-2.

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $392 - $168
Cash Flow to Creditors = $224