1. How would you describe Sunset Boards's cash flows for 2021? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Cash Flows and Fil
Sunset Boards, Inc., is a small company that manufactures
and sells surfboards in Malibu. Tad Marks, the founder of the
company, is in charge of the design and sale of the surfboards,
but his background is in surfing, not business. As a result, the
company's financial records are not well maintained.
The initial investment in Sunset Boards was provided by
Tad and his friends and family. Because the initial investment
was relatively small, and the company has made surfboards
only for its own store, the investors haven't required detailed
financial statements from Tad. But thanks to word of mouth
among professional surfers, sales have picked up recently,
and Tad is considering a major expansion. His plans include
opening another surfboard store in Hawaii, as well as supplying
his "sticks (surfer lingo for boards) to other sellers,
Tad's expansion plans require a significant investment,
which he plans to finance with a combination of additional
funds from outsiders plus some money borrowed from banks.
Naturally, the new investors and creditors require more orga-
nized and detailed financial statements than Tad has previously
prepared. At the urging of his investors, Tad has hired financial
analyst Christina Jennings to evaluate the performance of the
company over the past year.
After rooting through old bank statements, sales receipts.
tax returns, and other records, Christina has assembled the
following information:
Cost of goods sold
Cash
Depreciation
Interest expense
Selling and administrative
Accounts payable
Net fixed assets
Sales
Accounts receivable
Notes payable
Long-term debt
Inventory
New equity
2020
$306,726
44,261
86,590
18,824
60,322
31,423
382,014
601,729
31,363
35,654
192,827
60,382
0
2021
$387,290
66,870
97,871
21,576
78,732
53,181
465,426
733,469
40,681
38,929
210,408
81,209
23,400
Sunset Boards currently pays out 40 percent of net income
as dividends to Tad and the other original investors, and it has
a 21 percent tax rate. You are Christina's assistant, and she has
asked you to prepare the following:
1. An income statement for 2020 and 2021.
2. A balance sheet for 2020 and 2021.
3. Operating cash flow for each year.
4. Cash flow from assets for 2021..
5. Cash flow to creditors for 2021.
6. Cash flow to stockholders for 2021.
QUESTIONS
1. How would you describe Sunset Boards's cash flows for
2021? Write a brief discussion.
2. In light of your discussion in the previous question, what
do you think about Tad's expansion plans?
Transcribed Image Text:Cash Flows and Fil Sunset Boards, Inc., is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company's financial records are not well maintained. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his "sticks (surfer lingo for boards) to other sellers, Tad's expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more orga- nized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Jennings to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts. tax returns, and other records, Christina has assembled the following information: Cost of goods sold Cash Depreciation Interest expense Selling and administrative Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity 2020 $306,726 44,261 86,590 18,824 60,322 31,423 382,014 601,729 31,363 35,654 192,827 60,382 0 2021 $387,290 66,870 97,871 21,576 78,732 53,181 465,426 733,469 40,681 38,929 210,408 81,209 23,400 Sunset Boards currently pays out 40 percent of net income as dividends to Tad and the other original investors, and it has a 21 percent tax rate. You are Christina's assistant, and she has asked you to prepare the following: 1. An income statement for 2020 and 2021. 2. A balance sheet for 2020 and 2021. 3. Operating cash flow for each year. 4. Cash flow from assets for 2021.. 5. Cash flow to creditors for 2021. 6. Cash flow to stockholders for 2021. QUESTIONS 1. How would you describe Sunset Boards's cash flows for 2021? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans?
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