a. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings.

The input information required for the problem is outlined in the "Key Input Data" section below. Using this data and the balance sheet above, we constructed the income statement shown below.

Key Input Data for Cumberland Industries

2012

(Thousands of dollars)

Sales Revenue

$455,000

Expenses (excluding depreciation) as a percent of sales

85.0%

Net fixed assest

$67,000

Depr. as a % of net fixed assets

10.0%

Tax rate

40.0%

Interest expense

$8,550

Dividend Payout Ratio

25%

Cumberland Industries: Income Statement (Thousands of dollars)

2012

Sales

Operating costs excluding depreciation

EBITDA

Depreciation (Cumberland has no amortization charges)

EBIT

Interest expense

EBT

Taxes (40%)

Net income

Common dividends

Addition to retained earnings

b. Cumberland Industries' partial balance sheets are shown below. Cumberland issued $10,000,000 of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity.

Dollar value of common stock issued (in thousands of dollars)

$10,000

Cumberland Industries December 31 Balance Sheets

(in thousands of dollars)

2012

2011

Assets

Cash and cash equivalents

$91,450

$74,625

Short-term investments

11,400

15,100

Accounts Receivable

108,470

85,527

Inventories

38,450

34,982

Total current assets

$249,770

$210,234

Net fixed assets

67,000

42,436

Total assets

$316,770

$252,670

Liabilities and equity

Accounts payable

$30,761

$23,109

Accruals

30,405

22,656

Notes payable

12,717

14,217

Total current liabilities

$73,883

$59,982

Long-term debt

80,263

63,914

Total liabilities

$154,146

$123,896

Common stock

$90,000

Retained earnings

38,774

Total common equity

$128,774

Total liabilities and equity

$252,670

Check for balancing (this should be zero):

c. Construct the statement of cash flows for the most recent year.

Statement of Cash Flows

(in thousands of dollars)

Operating Activities

Net Income

Adjustments:

Noncash adjustment:

Depreciation

Due to changes in working capital:

Due to change in accounts receivable

Due to change in inventories

Due to change in accounts payable

Due to change in accruals

Net cash provided (used) by operating activities

Investing Activities

Cash used to acquire gross fixed assets

Due to change in short-term investments

Net cash provided (used) by investing activities

Financing Activities

Due to change in notes payable

Due to change in long-term debt

Due to change in common stock

Payment of common dividends

Net cash provided (used) by financing activities

Net increase/decrease in cash

Add: Cash balance at the beginning of the year

Cash balance at the end of the year

Check: cash balance in statement of cash flows should equal the cash on balance sheets as shown here:

$91,450