1.During 2020, Raines Umbrella Corp. had sales of $675,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $435,000, $85,000, and $125,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions, and assume the tax rate is average rate.)

A.What is Raines's net income for 2020?

Total Revenues - Total Expenses

$675,000 - 435,000 - 85,000 - 125,000 - 70,000 - (-14,000(taxes)) = $-26,000

Net Income: $-26,000

B.What is its operating cash flow?

EBTI + Depreciation - Taxes

$675,000 - 435,000 - 85,000 + 125,000 = 280,000

OCF: $280,000

C.Explain your results in (A) and (B) from the perspectives of Net income and Operating cash flow.

This company does not making Net income now, Has positive OCF. I can tell they'll start making a net income soon due to their nice cash flow.

2.Orchid Nursery had the following operating results for 2020: sales = $22,800; cost of goods sold = $16,050; depreciation expense = $4,050; interest expense = $1,830; dividends paid = $1,300. At the beginning of the year, net fixed assets were $13,650, current assets were $4,800, and current liabilities were $2,700. At the end of the year, net fixed assets were $16,800, current assets were $5,930, and current liabilities were $3,150. The tax rate for 2020 was 34 percent.

A.What is Orchid Nursery's net income for 2020?

Total Revenues - Total Expenses

22,800 + 16,050 - 4,050 - 1,830 - 1,300 -

B.What is its operating cash flow for 2020?

C.What is its cash flow from assets for 2020? Is this possible? Explain.

D.If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to stockholders? Explain and interpret the positive and negative signs of your answers in (A) through (D).

3.Consider the following abbreviated financial statements for Parrothead Enterprises:

Parrothead Enterprises

2019 and 2020 Partial Balance Sheets

Assets

Liabilities and Owner's Equity

2019

2020

2019

2020

Current assets

$ 653

$ 707

Current liabilities

$ 261

$ 293

Net fixed assets

2,691

3,240

Long-term debt

1,422

1,512

Parrothead Enterprises

2020 Income Statement

Sales

$ 8,280

Costs

3,861

Depreciation

738

Interest Paid

211

A.What is owners' equity for 2019 and 2020?

B.What is the change in net working capital for 2020?

C.In 2020, Parrothead Enterprises purchased $1,350 in new fixed assets. How much in fixed assets did Parrothead Enterprises sell? What is the cash flow from assets for the year? (The tax rate is 35 percent.)

D.During 2020, Parrothead Enterprises raised $420 in new long-term debt. How much long-term debt must Parrothead Enterprises have paid off during the year? What is the cash flow to creditors?