CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS, INC.

Sunset Boards 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 companys 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 havent 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.

Tads 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 organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Jameson Reid to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Jameson has assembled the following information:

2018 2019 Cost of goods sold $224,349 $283,281 Cash 32,372 34,394 Depreciation 63,334 71,584 Interest expense 13,783 15,780 Selling & administrative expenses 44,121 57,586 Accounts payable 57,220 63,479 Net fixed assets 279,419 348,508 Sales 440,122 536,483 Accounts receivable 22,939 29,755 Notes payable 26,079 28,474 Long-term debt 141,040 158,368 Inventory 48,272 66,244 New equity 0 27,157

Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 21 percent tax rate. You are Jameson's assistant, and she has asked you to prepare the following:

1. An income statement for 2018 and 2019.

2. A balance sheet for 2018 and 2019.

3. Operating cash flow for each year.

4. Cash flow from assets for 2019.

5. Cash flow to creditors for 2019.

6. Cash flow to stockholders for 2019.

QUESTIONS

1.How would you describe Sunset Boards cash flows for 2019? Write a brief discussion.

2.In light of your discussion in the previous question, what do you think about Tads expansion plans?