CHAPTER CASE 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 Paula Wolfe to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Paula has assembled the following information:

2014 214,607 26,056 54,230 11,954 43,626 48,090 264,021 406,427 22,542 21,571 119,976 50,185 20,160 2013 Cost of goods sold Cash Depreciation Interest expense Selling & administrative expenses Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity $169,969 24,524 47,980 10,442 33,425 43,344 211,680 333,426 17,378 19,757 106,848 36,570 Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 20 percent tax rate You are Paula's assistant, and she has asked you to prepare the following 1. An income statement for 2013 and 2014 2. A balance sheet for 2013 and 2014 3. Operating cash flow for each year 4. Cash filow from assets for 2014 5. Cash filow to creditors for 2014 6. Cash filow to stockholders for 2014 QUESTIONS 1. How would you describe Sunset Boards' cash flows for 2014? Write a brief discussion 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans