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 $ 3,198 $ 3,389 Current liabilities $ 1,381 $ 2,030 Net fixed assets 14,826 15,500 Long-term debt 8,086 9,434 CABO WABO, INC. 2014 Income Statement Sales $ 47,842 Costs 23,992 Depreciation 4.040 Interest paid 750 Requirement 1: What is owners' equity for 2013 and 2014? (Round your answers to the nearest whole number (0.g. 32).) Owners' equity 2013 2014 Requirement 2: What is the change in net working capital for 2014? (Round your answer to the nearest whole number (0.g., 32). Negative amount should be indicated by a minus sign.) Change in net working capital Requirement 3: In 2014, Cabo Wabo purchased $8,424 in new fixed assets. The tax rate is 40 percent (a) How much in fixed assets did Cabo Wabo sell? (Round your answer to the nearest whole number (0.g., 32).) Fixed assets sold (b) What is the cash flow from assets for the year? (Round your answer to the nearest whole number amount (e.g., 32).)

Answer 1

	Requirement 1:	Owners' equity
	Owners' equity = Total assets-Total liabilities.
	2013 = (3198+14826)-(1381+8086) =	$             8,557
	2014 = (3389+15500)-(2030+9434) =	$             7,425
	Requirement 2:
	Change in NWC = Ending NWC-Beginning NWC = (3389-2030)-(3198-1381) =	$    -458
	Requirement 3:
a]	Fixed assets sold = Beginning NFA-Depreciation+New fixed assets purchased-Ending fixed assets
	= 14826-4040+8424-15500 =	$             3,710
b]	Cash flow from assets = OCF-Capital expenditure-Change in NWC
	OCF = EBIT+Depreciation-Taxes
	EBIT = 47842-23992-4040 =	$           19,810
	Taxes = (EBIT-Interest)*tax rate = (19810-750)*40% =	$             7,624
	OCF = 19810+4040-7624 =	$           16,226
	Cash flow from assets = 16226-(8424-3710)-(-458) =	$           11,970
	Requirement 4:
	Cash flow to creditors = Interest expense+(Beginning LT debt-Ending LT Debt)
	= 750+(8086-9434) =	$               -598
	Long term debt paid off during the year = Beginning LT debt+New debt-Ending LT debt = 8086+2535-9434 =	$             1,187