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 company's financial records are not well maintained.

The initial invesment 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 haven't required deteiled financila statments for 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 stoer in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers.

Tad's 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 that 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 statments, sales receipts, tax returns, other records, Paula has assembled the following information:

	2013	2014
Cost of goods sold	141,641	178,839
Cash	20,437	30,880
Depreciation	39,983	45,192
Interest Expense	8,702	9,962
Selling & Administrative Expenses	27,854	36,355
Accounts Payable	36,120	40,908
Net fixed assets	176,400	214,184
Sales	277,855	338,688
Accounts Receivable	14,482	18,785
Notes Payable	16,464	17,976
Long-term debt	89,040	102,480
Inventory	30,475	41,821
New Equity	0	16,800

Sunset Boards currently pays out 50% of net income as dividends to Tad and the other original investors, and has a 20% tax rate. You are Paula's assistant, and she has asked you to prepare the financial statments and cash flow calculations.

DUE:

Prepare the following

An income statement for 2013 and 2014.

A balance sheet for 2013 and 2014.

Operating cash flow for 2013 and 2014.

Cash flow from assets for 2014.

Cash flow from creditors for 2014.

Cash flow from stockholders for 2014.

Answer the following:

1. How would you describe Sunset Boards' cash flows for 2010? Write a brief discussion.

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