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Year 1 Year 2 Year 3 40 35 30 40 42 49 42 Line Information 1 Days in accounts receivable 2 Days in accounts payable 3 Days in inventory 4 Mark Up Operating expenses 6 Income tax rate 7 Days in year 8 Property plant and equipment gross addition 9 Financing cost 10 Initial debt 11 Debt amortization (months) 12 Interest rate 13 Monthly payment 35 39 65% 14% 30% 365 25% 30% 365 19% 30% 365 $ 75,000 $ 950,000 $ 3,500,000 $ 100,000 $ 4,000,000 120 4.25% $ (40,975.01) D E F G H J Year 1 Year 2 Year 3 A B 1 [Total Points 2] 2 Line Balance Sheets 3 Assets 4 1 Cash 5 2 Accounts receivable 6 3 Inventory 7 4 Prepaid expenses 8 5 Current assets $ 234,766 $ 886,219 ? $ 122,580 $ 600,000 $ 550,000 $ 15,000 ? ? ? $ ? ? 15,000 15,000 $ ? ? $ $ ? 150,000 90,000 $ 3,490,000 $ 165,000 $ 80,000 $ 5,022,580 $ 4,365,000 $ 140,000 $ 70,000 ? 6 Property, plant and equipment, net of depreciation 7 Other assets 8 Financing costs, net of amortization 9 Total assets Liabilities 10 Accounts payable 11 Accrued expenses 12 Current portion of long-term debt 13 Income taxes payable (receivable) 14 Current liabilities ? ? 15 6 17 18 9 $ $ ? 30,000 342,258 $ 47,000 $ 357,090 ? ? $ 52,000 $ 372,566 ? ? ? ? 15 ? $ 4,041,164 ? $ 3,900,685 $ 2,600,045 ? 16 17 Long-term debt Total liabilities Shareholders' equity Common stock (10,000 shares outstanding; $1 par value) Additional paid-in capital Retained earnings (deficit) Total shareholders' equity Total liabilities and shareholders' equity 10,000 40,000 24 5 26 27 18 $ $ ? ? $ 10,000 $ 722,749 ? ? $ 10,000 $ 722,749 ? ? 19 20 21 28 $ 4,479,903 ? 6,945,709 29 D E F G H J Year 1 $ 3,000,000 $ 1,500,000 ? Year 2 ? ? $ 1,477,381 Year 3 $ 10,000,000 ? ? 3 ? 8 9 ? ? 1 [Total Points 2] 2 3 Line Income Statements 4 1 Sales 5 2 Cost of sales 6 3 Gross profit 7 8 4 Operating expenses 9 5 Amortization 10 6 Depreciation 11 Income (loss) from operations 8 Interest expense 13 9 Other income (expense) Income (loss) before income 14 10 taxes 15 11 Income taxes or (refund) 16 12 Net income (loss) 17 18 19 20 21 ? ? $ 40,000 ? $ 163,659 $ 19,000 ? ? ? ? $ 240,943 $ 8,000 12 ? $ $ 219,344 (17,000) ? ? ? ? $ 2,218,050 ? ? ? ? ? 22 [Total Points 4] Year 1 Year 2 Year 3 ? ? ? ? ? ? $ $ 75,000 10,000 ? ? ? $ $ $ ? $ 15,000 172,603 30,000 ? ? $ $ 351,207 $ 17,000 ? $ (362,677) ? ? ? ? $ 5,000 ? $ 2,045,730 262,807 Line Statements of Cash Flows Operating activities 1 Net income (loss) 2 Reconciliation to cash flow: 3 Depreciation 4 Amortization 5 Changes in operating accounts; increase (decrease): 6 Accounts receivable 7 Inventory 8 Prepaid expenses 9 Accounts payable 10 Accrued expenses 11 Income taxes payable/receivable 12 Cash flow provided (used) by operations Investing activities 13 Property plant and equipment 14 Other assets 15 Cash flow used (provided) in investing activities Financing activities 16 Increase in financing costs 17 Additions to long-term debt 18 Reduction of long-term debt 19 Increase in common stock 20 Increase in additional paid in capital 21 Cash flow provided (used) in financing activities 22 Net increase (decrease) in cash [lines 12,15 and 21] 23 Cash at the beginning of the year 24 Cash at the end of the year ? $ ? ? $ ? ? $ 150,000 15,000 (25,000) ? 100,000 $ ? 10,000 40,000 ? $ $ ? ? ? $ $ $ $ $ (342,258) $ ? $ 340,491 ? $ 234,766 ? $ $ $ (357,090) $ $ ? ? ? $ 122,580 $ 886,219 234,766 Assets Note Keeping the sources (+) and uses (-) straight Cash provided (source of cash) Cash used Liabilities & Equity The statement of cash flows adjusts net income or loss for all non-cash items included in net income and adds or subtracts cash transactions that were not reflected in net income or loss in order to compute cash. Accordingly, when assets on the balance sheet decrease () we collected cash not included in net income or we recognized a non-cash loss in net income that needs to be added back to net income. This is why a decrease in an asset is a source of cash (+) on the statement of cash flows. When assets increase (1) on the balance sheet, it means net income or loss includes non-cash revenue which must be subtracted out of net income or that we paid cash for the asset that is not reflected in net income. In other words, the increase in the asset is a use of cash (-) on the statement of cash flows. An increase (1) in a liability means that a non-cash expense was included in net income and must be added back to net income or that we received cash in the form of a loan or contribution that was not reflected in net income. This means that the increase in the liability is a source of cash (+) on the statement of cash flows. When liabilities decrease (1) it means we paid cash to settle the liability not reflected in net income or recognized a non-cash gain in net income which needs to be subtracted from net income. This is why a liability decrease is a use of cash (-) on the statement of cash flows. The change in shareholders' equity always ignores the net income or loss since it is already included in net income on the statement of changes in cash flows. The other increases (1) and decreases (1) in shareholders' equity are treated exactly as changes in liabilities. Year 1 Year 2 Year 3 40 35 30 40 42 49 42 Line Information 1 Days in accounts receivable 2 Days in accounts payable 3 Days in inventory 4 Mark Up Operating expenses 6 Income tax rate 7 Days in year 8 Property plant and equipment gross addition 9 Financing cost 10 Initial debt 11 Debt amortization (months) 12 Interest rate 13 Monthly payment 35 39 65% 14% 30% 365 25% 30% 365 19% 30% 365 $ 75,000 $ 950,000 $ 3,500,000 $ 100,000 $ 4,000,000 120 4.25% $ (40,975.01) D E F G H J Year 1 Year 2 Year 3 A B 1 [Total Points 2] 2 Line Balance Sheets 3 Assets 4 1 Cash 5 2 Accounts receivable 6 3 Inventory 7 4 Prepaid expenses 8 5 Current assets $ 234,766 $ 886,219 ? $ 122,580 $ 600,000 $ 550,000 $ 15,000 ? ? ? $ ? ? 15,000 15,000 $ ? ? $ $ ? 150,000 90,000 $ 3,490,000 $ 165,000 $ 80,000 $ 5,022,580 $ 4,365,000 $ 140,000 $ 70,000 ? 6 Property, plant and equipment, net of depreciation 7 Other assets 8 Financing costs, net of amortization 9 Total assets Liabilities 10 Accounts payable 11 Accrued expenses 12 Current portion of long-term debt 13 Income taxes payable (receivable) 14 Current liabilities ? ? 15 6 17 18 9 $ $ ? 30,000 342,258 $ 47,000 $ 357,090 ? ? $ 52,000 $ 372,566 ? ? ? ? 15 ? $ 4,041,164 ? $ 3,900,685 $ 2,600,045 ? 16 17 Long-term debt Total liabilities Shareholders' equity Common stock (10,000 shares outstanding; $1 par value) Additional paid-in capital Retained earnings (deficit) Total shareholders' equity Total liabilities and shareholders' equity 10,000 40,000 24 5 26 27 18 $ $ ? ? $ 10,000 $ 722,749 ? ? $ 10,000 $ 722,749 ? ? 19 20 21 28 $ 4,479,903 ? 6,945,709 29 D E F G H J Year 1 $ 3,000,000 $ 1,500,000 ? Year 2 ? ? $ 1,477,381 Year 3 $ 10,000,000 ? ? 3 ? 8 9 ? ? 1 [Total Points 2] 2 3 Line Income Statements 4 1 Sales 5 2 Cost of sales 6 3 Gross profit 7 8 4 Operating expenses 9 5 Amortization 10 6 Depreciation 11 Income (loss) from operations 8 Interest expense 13 9 Other income (expense) Income (loss) before income 14 10 taxes 15 11 Income taxes or (refund) 16 12 Net income (loss) 17 18 19 20 21 ? ? $ 40,000 ? $ 163,659 $ 19,000 ? ? ? ? $ 240,943 $ 8,000 12 ? $ $ 219,344 (17,000) ? ? ? ? $ 2,218,050 ? ? ? ? ? 22 [Total Points 4] Year 1 Year 2 Year 3 ? ? ? ? ? ? $ $ 75,000 10,000 ? ? ? $ $ $ ? $ 15,000 172,603 30,000 ? ? $ $ 351,207 $ 17,000 ? $ (362,677) ? ? ? ? $ 5,000 ? $ 2,045,730 262,807 Line Statements of Cash Flows Operating activities 1 Net income (loss) 2 Reconciliation to cash flow: 3 Depreciation 4 Amortization 5 Changes in operating accounts; increase (decrease): 6 Accounts receivable 7 Inventory 8 Prepaid expenses 9 Accounts payable 10 Accrued expenses 11 Income taxes payable/receivable 12 Cash flow provided (used) by operations Investing activities 13 Property plant and equipment 14 Other assets 15 Cash flow used (provided) in investing activities Financing activities 16 Increase in financing costs 17 Additions to long-term debt 18 Reduction of long-term debt 19 Increase in common stock 20 Increase in additional paid in capital 21 Cash flow provided (used) in financing activities 22 Net increase (decrease) in cash [lines 12,15 and 21] 23 Cash at the beginning of the year 24 Cash at the end of the year ? $ ? ? $ ? ? $ 150,000 15,000 (25,000) ? 100,000 $ ? 10,000 40,000 ? $ $ ? ? ? $ $ $ $ $ (342,258) $ ? $ 340,491 ? $ 234,766 ? $ $ $ (357,090) $ $ ? ? ? $ 122,580 $ 886,219 234,766 Assets Note Keeping the sources (+) and uses (-) straight Cash provided (source of cash) Cash used Liabilities & Equity The statement of cash flows adjusts net income or loss for all non-cash items included in net income and adds or subtracts cash transactions that were not reflected in net income or loss in order to compute cash. Accordingly, when assets on the balance sheet decrease () we collected cash not included in net income or we recognized a non-cash loss in net income that needs to be added back to net income. This is why a decrease in an asset is a source of cash (+) on the statement of cash flows. When assets increase (1) on the balance sheet, it means net income or loss includes non-cash revenue which must be subtracted out of net income or that we paid cash for the asset that is not reflected in net income. In other words, the increase in the asset is a use of cash (-) on the statement of cash flows. An increase (1) in a liability means that a non-cash expense was included in net income and must be added back to net income or that we received cash in the form of a loan or contribution that was not reflected in net income. This means that the increase in the liability is a source of cash (+) on the statement of cash flows. When liabilities decrease (1) it means we paid cash to settle the liability not reflected in net income or recognized a non-cash gain in net income which needs to be subtracted from net income. This is why a liability decrease is a use of cash (-) on the statement of cash flows. The change in shareholders' equity always ignores the net income or loss since it is already included in net income on the statement of changes in cash flows. The other increases (1) and decreases (1) in shareholders' equity are treated exactly as changes in liabilities