49 Financial Statements, Taxes, and Cash Flow CHAPTER 2 CHAPTER CASE Cash Flows and Financial Statements at Sunset Boards, Inc. unset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the 2019 2018 founder of the company, is in charge of the design and $224,359 $283,281 Cost of goods sold sale of the surfboards, but his background is in surfing, 32,372 34,394 Cash not business. As a result, the company's financial 63,334 13,783 Depreciation 71,584 Interest expense 15,780 records are not well maintained. 57,586 Selling and administrative 44,121 The initial investment in Sunset Boards was pro- expenses vided by Tad and his friends and family. Because the ini- tial investment was relatively small, and the company Accounts payable 57,220 63,479 279,419 440,122 Net fixed assets 348,508 has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. Sales 536,483 22,939 26,079 141,040 48,272 29,755 28,474 158,368 Accounts receivable Notes payable Long-term debt Inventory New equity But thanks to word of mouth among professional surf- ers, sales have picked up recently, and Tad is consider- 66,244 ing a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying 27,157 his "sticks" (surfer lingo for boards) to other sellers. Sunset Boards currently pays out 50 percent of net Tad's expansion plans require a significant invest- income as dividends to Tad and the other original inves- ment, which he plans to finance with a combination of tors and has a 21 percent tax rate. You are Jameson's additional funds from outsiders plus some money bor- assistant, and he has asked you to prepare the rowed from banks. Naturally, the new investors and following: creditors require more organized and detailed financial statements than Tad has previously prepared. At the 1. An income statement for 2018 and 2019. urging of his investors, Tad has hired financial analyst A balance sheet for 2018 and 2019. 2. Jameson Reid to evaluate the performance of the com- 3 Operating cash flow for each year pany over the past year. After rooting through old bank statements, sales re- 4 Cash flow from assets for 2019. 5. Cash flow to creditors for 2019. ceipts, tax returns, and other records, Jameson has as- sembled the following information: Cash flow to stockholders for 2019 6 QUESTIONS 1. How would you describe Sunset Boards's cash 2. In light of your discussion in the previous question, flows for 2019? Write a brief discussion. what do you think about Tad's expansion plans? 49 Financial Statements, Taxes, and Cash Flow CHAPTER 2 CHAPTER CASE Cash Flows and Financial Statements at Sunset Boards, Inc. unset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the 2019 2018 founder of the company, is in charge of the design and $224,359 $283,281 Cost of goods sold sale of the surfboards, but his background is in surfing, 32,372 34,394 Cash not business. As a result, the company's financial 63,334 13,783 Depreciation 71,584 Interest expense 15,780 records are not well maintained. 57,586 Selling and administrative 44,121 The initial investment in Sunset Boards was pro- expenses vided by Tad and his friends and family. Because the ini- tial investment was relatively small, and the company Accounts payable 57,220 63,479 279,419 440,122 Net fixed assets 348,508 has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. Sales 536,483 22,939 26,079 141,040 48,272 29,755 28,474 158,368 Accounts receivable Notes payable Long-term debt Inventory New equity But thanks to word of mouth among professional surf- ers, sales have picked up recently, and Tad is consider- 66,244 ing a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying 27,157 his "sticks" (surfer lingo for boards) to other sellers. Sunset Boards currently pays out 50 percent of net Tad's expansion plans require a significant invest- income as dividends to Tad and the other original inves- ment, which he plans to finance with a combination of tors and has a 21 percent tax rate. You are Jameson's additional funds from outsiders plus some money bor- assistant, and he has asked you to prepare the rowed from banks. Naturally, the new investors and following: creditors require more organized and detailed financial statements than Tad has previously prepared. At the 1. An income statement for 2018 and 2019. urging of his investors, Tad has hired financial analyst A balance sheet for 2018 and 2019. 2. Jameson Reid to evaluate the performance of the com- 3 Operating cash flow for each year pany over the past year. After rooting through old bank statements, sales re- 4 Cash flow from assets for 2019. 5. Cash flow to creditors for 2019. ceipts, tax returns, and other records, Jameson has as- sembled the following information: Cash flow to stockholders for 2019 6 QUESTIONS 1. How would you describe Sunset Boards's cash 2. In light of your discussion in the previous question, flows for 2019? Write a brief discussion. what do you think about Tad's expansion plans