Saved Chapter 2 Questions 4 Consider the following abbreviated financial stateme

Question

Saved Chapter 2 Questions 4 Consider the following abbreviated financial statements for Parrothead Enterprises: PARROTHEAD ENTERPRISES 2017 and 2018 Partial Balance Sheets 10 points Liabilities and Owners' Equity 2017 2018 Assets 2017 2018 004153 Current assets $1,206 $ 1,307 Current liabilities $482 541 Net fixed assets 4,973 5,988 Long-term debt 2.628 2795 PARROTHEAD ENTERPRISES 2018 Income Statement Sales Costs $15,301 7135 Depreciation 1,363 388 a. What is owners equity for 2017 and 2018? (Do not round intermediate b. What is the change in net working capital for 2018? (Do not round intermediate c-1. In 2018, Parrothead Enterprises purchased $2,496 in new fixed assets. How much in calculations.) caculations fixed assets did Parrothead Enterprises seli? (Do not round intermediate calculations.) c-2. In 2018, Parrothead Enterprises purchased $2,496 in new fxed assets. What is the d-1. During 2018, Parrothead Enterprises raised $504 in new long-term debt. How much d-2. During 2018, Parrothead Enterprises raised $504 in new long-term debt. What is the cash flow from assets for the year? The tax rate is 21 percent. (Do not round intermediate calculations.) long-term debt must Parrothead Enterprises have paid off during the year? (Do not round intermediate calculations.) cash flow to creditors? (Do not round intermediate calculations.) K Prev 4 of 10 8

Explanation / Answer

Part a)

Owner's equity = Assets - Liabilities

Thus, Owner's equity 2017 = Assets 2017 - Liabilities 2017

Assets 2017 = current asset 2017 + net fixed asset 2017

Assets 2017 = $1206 + $4973

Assets 2017 = $6179

Liabilities 2017 = Current liabilities 2017 + long term debt 2017

Liabilities 2017 = $482 + $2628

Liabilities 2017= $3110

Thus, Owner's equity 2017 = $6179 - $3110

Owner's equity 2017 = $3069

Similarly, Owner's equity 2018 = Assets 2018 - Liabilities 2018

Assets 2018 = $1307 + $5988 = $7295

Liabilities 2018 = $541 + $2795 = $3336

Owner's equity 2018 = $7295 - $3336

Owner's equity 2018 = $3959

Part b)

Net working capital = current assets- current liabilities

Net working capital 2017 = $1206 - $482

Net working capital 2017 = $724

Net working capital 2018 = $1307 - $541

Net working capital 2018 = $766

Thus, change in net working capital for 2018 = Net working capital 2018 - Net working capital 2017

Change in net working capital for 2018 = $766 - $ 724

Change in net working capital for 2018 = $42

Part C - 1 )

Fixed Asset sold = Previous year fixed asset + New asset - Current year fixed asset - depreciation

Fixed asset sold = fixed asset 2017 + New purchase - fixed asset 2018 - depreciation 2018

Fixed asset sold = $4973 + $2496 - $5988 - $1363

Fixed asset sold = $118

Part C-2)

Operating cash flow (OCF)= PBIT + depreciation - Tax

Here PBIT = Sales - Costs - Depreciation

PBIT = $15301 -$7135 - $1363

PBIT = $6803

Tax = Tax rate * PBT

PBT = PBIT - interest

PBT = $6803 - 388 (given data)

PBT = $6415

Thus Tax = 0.21 * 6415 = $1347.15

Thus, OCF = $6803+ $1363 -$1347.15

OCF = $6818.85

Cash flow from fixed asset (CFFA) = OCF - net change in working capital - net capital spending

net capital spending = new purchase - sale = $2496 - $118 = $2378

CFAA = $6818.85 - $42 (calculated in part b ) - $ 2378

CFAA = $4398.85

Part D-1)

Debt paid off = Previous year debt + new loan - current year debt

Debt paid off = Debt 2017 + New loan in 2018 - Debt 2018

Debt paid off = $2628 +$504 - $2795

Debt paid off = $337

Part D-2)

Cash flow to creditors = Interest - current year debt + previous year debt

Cash flow to creditors = $388 - $2795 + $2628

Cash Flow to creditors = $221

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.