Quarles Industries had the following operating results for 2015: sales = $28,000
ID: 2649380 • Letter: Q
Question
Quarles Industries had the following operating results for 2015: sales = $28,000; cost of goods sold = $19,660; depreciation expense = $5,180; interest expense = $2,490; dividends paid = $1,350. At the beginning of the year, net fixed assets were $17,180, current assets were $5,840, and current liabilities were $3,360. At the end of the year, net fixed assets were $20,560, current assets were $7,000, and current liabilities were $3,960. The tax rate for 2015 was 30 percent.
If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.)
If no new debt was issued during the year, what is the cash flow to stockholders? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)
Quarles Industries had the following operating results for 2015: sales = $28,000; cost of goods sold = $19,660; depreciation expense = $5,180; interest expense = $2,490; dividends paid = $1,350. At the beginning of the year, net fixed assets were $17,180, current assets were $5,840, and current liabilities were $3,360. At the end of the year, net fixed assets were $20,560, current assets were $7,000, and current liabilities were $3,960. The tax rate for 2015 was 30 percent.
Explanation / Answer
a). Solution :- Income statement
Sales
(-) Cost of goods sold
28000
19660
Gross profit
(-) Depreciation expense
8340
5180
Earnings before interest and tax (EBIT)
(-) Interest expense
3160
2490
Earnings before tax (EBT)
(-) Tax expense (30 % of 670)
670
201
Conclusion :- Net income for Year 2015 = 469.
b). Solution :- Operating cash flow (OCF) = EBIT + Depreciation expense - Tax expense.
= 3160 + 5180 - 201.
= $ 8139.
Conclusion :- Operating cash flow (OCF) for Year 2015 = $ 8139.
c). Solution :-
Cash flow from assets = Operating cash flow (OCF) - Change in net working capital - Net capital spending.
Net capital spending = (Net fixed assets at end of Year - Net fixed assets at start of year) + Depreciation expense
= (20560 - 17180) + 5180.
= 3380 + 5180
= $ 8560.
Change in net working capital (NWC) = (Current assets at end of year - Current liabilities at end of year) - (Current assets at start of year - Current liabilities at the start of year).
= (7000 - 3960) - (5840 - 3360)
= 3040 - 2480
= $ 560.
Accordingly, Cash flow from assets = 8139 - 560 - 8560.
= (-) $ 981.
Conclusion :- Cash flow from assets for Year 2015 = (-) $ 981.
d-1). Solution :- Cash flow to creditors = $ 2490 (Interest expense).
d-2). Solution :- Cash flow to stockholders = Cash flow from assets - Cash flow to creditors.
= (-) 981 - 2490
= (-) $ 3471.
Conclusion :- Cash flow to stockholders = (-) $ 3471.
Particulars Amount ($)Sales
(-) Cost of goods sold
28000
19660
Gross profit
(-) Depreciation expense
8340
5180
Earnings before interest and tax (EBIT)
(-) Interest expense
3160
2490
Earnings before tax (EBT)
(-) Tax expense (30 % of 670)
670
201
Net income 469