Question

W IGWhil tucation Campu X 5 Chapter 2 Homework * C Consider the G Bear Tracks, Inc., has current assets of $2,310, net fixed assets of $10,700, current liabilities of $1,420, and long-term debt of $4,120. What is the valu → C Consider the following abbreviated financial statements for Cabo Wabo, Inc.: CABO WABO, INC. Partial Balance Sheets as of December 31, 2015 and 2016 2015 2016 Liabilities and Owners' Equity $ 2,745 $ 2,884 Current liabilities 12,495 13,047 Long-term debt 2015 2016 Assets Current assets Net fixed assets $ 1,111 6,609 $ 1.661 7,822 CABO WABO, INC. 2016 Income Statement Sales $ 40,070 Costs 20,074 Depreciation 3,437 Interest paid 654 a. What is owners' equity for 2015 and 2016? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) 2015 2016 Owners' equity $ 7520 s 6448 b. What is the change in net working capital for 2016? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round number, e.g., 32.) Change in net working capital $ 411 c. In 2016, the company purchased $5,866 in new fixed assets. The tax rate is 40 percent. 1. How much in fixed assets did the company sell? (Do not round intermediate calculations and round your answer to the nearest whole number, 0.9., 32.) Fixed assets sold 2. What is the cash flow from assets for the year? (Do not round intermediate calculations and round your answer to the nearest whole number, 0.9.. 32.) Cash flow from assets d. During 2016, the company raised $1,840 in new long-term debt.

Answer 1

Answer a.

2015:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($2,745 + $12,495) - ($1,111 + $6,609)
Owners’ Equity = $7,520

2016:

Owners’ Equity = Total Assets - Total Liabilities
Owners’ Equity = (Current Assets + Net Fixed Assets) - (Current Liabilities + Long-term Debt)
Owners’ Equity = ($2,884 + $13,047) - ($1,661 + $7,822)
Owners’ Equity = $6,448

Answer b.

Change in Net Working Capital = Net Working Capital, 2016 - Net Working Capital, 2015
Change in Net Working Capital = (Current Assets, 2016 - Current Liabilities, 2016) - (Current Assets, 2015 - Current Liabilities, 2015)
Change in Net Working Capital = ($2,884 - $1,661) - ($2,745 - $1,111)
Change in Net Working Capital = -$411

Answer c-1.

Net Capital Spending = Net Fixed Assets, 2016 + Depreciation - Net Fixed Assets, 2015
Net Capital Spending = $13,047 + $3,437 - $12,495
Net Capital Spending = $3,989

Net Capital Spending = Purchase of Fixed Assets - Sale of Fixed Assets
$3,989 = $5,866 - Sale of Fixed Assets
Sale of Fixed Assets = $1,877

Answer c-2.

EBIT = Sales - Costs - Depreciation
EBIT = $40,070 - $20,074 - $3,437
EBIT = $16,559

EBT = EBIT - Interest Paid
EBT = $16,559 - $654
EBT = $15,905

Taxes = EBT * Tax Rate
Taxes = $15,905 * 40%
Taxes = $6,362

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $16,559 + $3,437 - $6,362
Operating Cash Flow = $13,634

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $13,634 - $3,989 - (-$411)
Cash Flow from Assets = $10,056

Answer d-1.

Net New Long-term Debt = Long-term Debt, 2016 - Long-term Debt, 2015
Net New Long-term Debt = $7,822 - $6,609
Net New Long-term Debt = $1,213

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $654 - $1,213
Cash Flow to Creditors = -$559

Answer d-2.

Net New Long-term Debt = Long-term Debt raised - Long-term Debt repaid
$1,213 = $1,840 - Long-term Debt repaid
Long-term Debt repaid = $627