CABO WABO, INC. Partial Balance Sheets as of December 31, 2015 and 2016 2016 201

Question

CABO WABO, INC. Partial Balance Sheets as of December 31, 2015 and 2016 2016 2015 2016 Assets Liabilities and Owners' Equity Current essets Net fixed assets S 2,745 2,884 Current liabilities 12,495 13,047 Long-term debt S 1,111 S 1,661 ,822 6,609 7 CABO WABO, INC. 2016 Income Statement Sales Costs S 40,070 20,074 3,437 654 Interest paid 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.) Owners' equity 2015 2016 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 your answer to the nearest whole number, e.g., 32.) Change in net working capital c. In 2016, the company purchased S5,866 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, e.g., 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, e.g., 32.) Cash flow from assets d. During 2016, the company raised $1,840 in new long-term debt. 1. What is the cash flow to creditors? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Cash flow to creditors 2. How much long-term debt must the company have paid off during the year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g, 32.) Debt retired

Explanation / Answer

Answer a.

2015:

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

2016:

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

Answer b.

2015:

Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $2,745 - $1,111
Net Working Capital = $1,634

2016:

Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $2,884 - $1,661
Net Working Capital = $1,223

Change in Net Working Capital = Net Working Capital, 2016 - Net Working Capital, 2015
Change in Net Working Capital = $1,223 - $1,634
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 = Fixed Assets Purchased - Fixed Assets Sold
$3,989 = $5,866 - Fixed Assets Sold
Fixed Assets Sold = $1,877

Answer c-2.

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

Taxes = (EBIT - Interest Paid) * tax rate
Taxes = ($16,559 - $654) * 0.40
Taxes = $6,362

Operating Cash Flow = EBIT - Taxes + Depreciation
Operating Cash Flow = $16,559 - $6,362 + $3,437
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 Debt = Long-term Debt, 2016 - Long-term Debt, 2015
Net New Debt = $7,822 - $6,609
Net New Debt = $1,213

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

Answer d-2.

Net New Debt = Debt Borrowed - Debt Retired
$1,213 = $1,840 - Debt Retired
Debt Retired = $627

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