OB-1 Company began business on the first day of year 1. The actual income statement, balance sheets and cash flow statements for the first two
OB-1 Company began business on the first day of year 1. The actual income statement, balance sheets and cash flow statements for the first two years are shown in the Excel workbook named Investing problem set workbook posted on your Company site on Blackboard. Selected forecast amounts are shown for year 3 in this workbook.
Additional information: 1. Management of OB-1 Company discloses that they will sell equipment at year end 3. Total proceeds are expected to total $38,250. The book value of the equipment totals $48,979. The cost of the equipment at the beginning of year 1 was $62,900. There are no disposals of equipment in years 1 and 2.
2. All property, plant and equipment are acquired on the first day of year 1. Assume that property, plant and equipment purchased during years 2 and 3 are purchased throughout the year. At the end of year 2 OB-1 Company owned land with a cost of $15,000 (purchased in year 1) and had never had construction in progress. Assume depreciation rate is similar to previous years % depreciation rate for year 3. All depreciation and amortization expense relate to property, plant and equipment.
3. OB-1 Company begins construction of administrative offices in year 3 and spends $7,250 on construction. The construction project will be completed in year 4.
4. OB-1 Company does not pay dividends.
5. Assume a 21% tax rate for year 3.
Required:
- Complete all of the missing amounts on the income statement, balance sheet and cash flow statement for year 3 in the Excel workbook named Investing problem set workbook posted in your company site on Blackboard. Show your work by creating the appropriate equations for each cell (use links throughout as shown in the Example Company posted in the main Blackboard site).
- Complete the missing amounts in the PPE schedules below the cash flow statement. Show your work by creating the appropriate equations in the property plant and equipment tables (use links throughout as shown in the Example Company posted on the main Blackboard site). (Note: the exercise we covered in class and the Example Company cover all of the required concepts.)
- Check the check figures. If they do not equal zero, you can find the problem account(s) by looking at the checking worksheet tab.
8 $ 9 For the year ended 10 Revenues 11 Cost of sales 12 Gross profit 13 Selling, general and administrative 14 Operating income 15 Interest expense 16 (Gain)/loss on sale of equipment 17 Income before income tax 18 Provision (benefit) for income tax 19 Net income (loss) Year 1 A 626,667 $ 483,333 143,333 120,000 23,333 29,167 Year 2 A 750,000 $ 525,000 225,000 86,667 138,333 22,167 Year 3 E ASSUMPTIONS 833,333 583,333 250,000 81,667 168,333 15,167 (5,833) (2,217) (3,617) $ 116,167 44,143 72,023 $ ZU 21 22 SELECTED COMMON SIZE AMOUNTS 23 Cost of sales 24 Gross profit 25 Selling, general and administrative 26 Operating income 27 Interest expense 28 Income before income tax 29 Provision (benefit) for income tax 30 Net income (loss) 77.13% 22.87% 19.15% 3.72% 4.65% -0.93% -0.35% -0.58% 70.00% 30.00% 11.56% 18.44% 2.96% 15.49% 5.89% 9.60% 70.00% 30.00% 9.80% 20.20% 1.82% 0.00% 0.00% 0.00% 19.68% 8.62% -27.78% -24.00% 11.11% 11.11% -5.77% -31.58% 32 33 SELECTED YEAR-TO-YEAR CHANGES 34 Revenues 35 Cost of sales 36 Selling, general and administrative 37 Interest expense 38 39 OB-1 COMPANY (WON) 40 Annual and Quarterly Balance Sheets 41 As of the end of Year 1 A 42 Current assets: 43 Cash and temporary cash investments $ 201,888 $ 44 Receivables, net of allowance for doubtful account 77,260 45 Inventories 39,726 46 Prepaid expenses 5,000 47 Total current assets 323,874 48 Net property, plant and equipment 948, 100 49 Total assets $ 1,271,974 $ 50 Liabilities and Stockholders' Equity: 51 Current liabilities: Year 2 A Year 3 E 227,975 92,466 43,151 5,833 369,425 875,250 1,244,675 $ 102,740 47,945 6,667 157,352 157,352 $ 100,000 $ 32,257 26,667 158,923 316,667 100,000 $ 31,268 28,333 159,601 216,667 100,000 24,000 28,750 152,750 116,667 Liabilities and Stockholders' Equity: Current liabilities: Current maturities of long-term debt Accounts payable Accrued liabilities Total current liabilities Long-term debt Stockholders' equity: Common stockholders' equity: Common stock $1 Additional paid-in capital Retained earnings (accumulated deficit) Total common stockholders' equity Total liabilities and common stockholders' equity 20,000 780,000 20,000 780,000 (3,617) 796,383 1,271,974 $ 20,000 780,000 68,407 868,407 1,244,675 $ 800,000 1,069,417 $ Annual and Quarterly Statements of Cash Flows 7 Year 1 A Year 2 A Year 3 E $ (3,617) $ 151,900 72,023 157,850 (77,260) (39,726) (5,000) 32,257 26,667 85,221 (15,206) (3,425) (833) (989) 1,667 211,087 (1,100,000) (85,000) (140,000) B For the year ended Cash Flow From Operations: Net Income Depreciation and amortization Gain/loss on sale of equipment Changes in operating assets and liabilities: (Increase) decrease in receivables 5 (Increase) decrease in inventories 6 (Increase) decrease in prepaid expenses Increase (decrease) in accounts payable (Decrease) increase in accrued liabilities Net cash provided by (used in) operations Cash flows from investing activities: 1 Purchases of property, plant and equipment - Proceeds from sale of property, plant and equipment Net cash used by investing activities Cash flows from financing activities: 5 Issue common stock 5 Issuance of debt, net of repayments Net cash provided by (used in) financing activities Net increase (decrease) in cash and temporary cas Cash and temporary cash investments, beginning o Cash and temporary cash investments, ending bala 1 2 31 4 Net income check figure 5 Balance sheet check figure 6 Cash flow check figure (1,100,000) (85,000) (140,000) 800,000 416,667 1,216,667 201.888 (100,000) (100,000) (100,000) (100,000) 26,087 201,888 227,975 201,888 (912,065) (912,065) 151,900 151,900 NA 157,850 157,850 NA 151,900 157,850 151,900 151,900 309,750 4 Net income check figure 5 Balance sheet check figure 6 Cash flow check figure 7 8 9 Depreciation and amortization o Depreciation expense 1 Amortization expense 2 3 Accumulated depreciation 4 Beginning balance 5 Add: Depreciation expense 6 Less: disposals 7 Ending balance 8 9 Cost of PPE 0 Depreciable property 1 Land 2 Construction in progress 3 Total cost of PPE 4 5 Cost of depreciable PPE 6 BB 7 Purchases 8 Disposals 9 Construction change 0 Land change 1 EB 2 Average cost of PPE 3 1,085,000 15,000 1,170,000 15,000 1,100,000 1,185,000 0 1,100,000 1,085,000 85,000 (15,000) 1,085,000 1,085,000 1,170,000 1,127,500 Net PPE 948, 100 875,250 14.00% Depreciation rate Average useful life 14.00% 7.14 7.14 #DIV/0! Sales proceeds BV Gain loss Cost Acc. Dep BV 8 $ 9 For the year ended 10 Revenues 11 Cost of sales 12 Gross profit 13 Selling, general and administrative 14 Operating income 15 Interest expense 16 (Gain)/loss on sale of equipment 17 Income before income tax 18 Provision (benefit) for income tax 19 Net income (loss) Year 1 A 626,667 $ 483,333 143,333 120,000 23,333 29,167 Year 2 A 750,000 $ 525,000 225,000 86,667 138,333 22,167 Year 3 E ASSUMPTIONS 833,333 583,333 250,000 81,667 168,333 15,167 (5,833) (2,217) (3,617) $ 116,167 44,143 72,023 $ ZU 21 22 SELECTED COMMON SIZE AMOUNTS 23 Cost of sales 24 Gross profit 25 Selling, general and administrative 26 Operating income 27 Interest expense 28 Income before income tax 29 Provision (benefit) for income tax 30 Net income (loss) 77.13% 22.87% 19.15% 3.72% 4.65% -0.93% -0.35% -0.58% 70.00% 30.00% 11.56% 18.44% 2.96% 15.49% 5.89% 9.60% 70.00% 30.00% 9.80% 20.20% 1.82% 0.00% 0.00% 0.00% 19.68% 8.62% -27.78% -24.00% 11.11% 11.11% -5.77% -31.58% 32 33 SELECTED YEAR-TO-YEAR CHANGES 34 Revenues 35 Cost of sales 36 Selling, general and administrative 37 Interest expense 38 39 OB-1 COMPANY (WON) 40 Annual and Quarterly Balance Sheets 41 As of the end of Year 1 A 42 Current assets: 43 Cash and temporary cash investments $ 201,888 $ 44 Receivables, net of allowance for doubtful account 77,260 45 Inventories 39,726 46 Prepaid expenses 5,000 47 Total current assets 323,874 48 Net property, plant and equipment 948, 100 49 Total assets $ 1,271,974 $ 50 Liabilities and Stockholders' Equity: 51 Current liabilities: Year 2 A Year 3 E 227,975 92,466 43,151 5,833 369,425 875,250 1,244,675 $ 102,740 47,945 6,667 157,352 157,352 $ 100,000 $ 32,257 26,667 158,923 316,667 100,000 $ 31,268 28,333 159,601 216,667 100,000 24,000 28,750 152,750 116,667 Liabilities and Stockholders' Equity: Current liabilities: Current maturities of long-term debt Accounts payable Accrued liabilities Total current liabilities Long-term debt Stockholders' equity: Common stockholders' equity: Common stock $1 Additional paid-in capital Retained earnings (accumulated deficit) Total common stockholders' equity Total liabilities and common stockholders' equity 20,000 780,000 20,000 780,000 (3,617) 796,383 1,271,974 $ 20,000 780,000 68,407 868,407 1,244,675 $ 800,000 1,069,417 $ Annual and Quarterly Statements of Cash Flows 7 Year 1 A Year 2 A Year 3 E $ (3,617) $ 151,900 72,023 157,850 (77,260) (39,726) (5,000) 32,257 26,667 85,221 (15,206) (3,425) (833) (989) 1,667 211,087 (1,100,000) (85,000) (140,000) B For the year ended Cash Flow From Operations: Net Income Depreciation and amortization Gain/loss on sale of equipment Changes in operating assets and liabilities: (Increase) decrease in receivables 5 (Increase) decrease in inventories 6 (Increase) decrease in prepaid expenses Increase (decrease) in accounts payable (Decrease) increase in accrued liabilities Net cash provided by (used in) operations Cash flows from investing activities: 1 Purchases of property, plant and equipment - Proceeds from sale of property, plant and equipment Net cash used by investing activities Cash flows from financing activities: 5 Issue common stock 5 Issuance of debt, net of repayments Net cash provided by (used in) financing activities Net increase (decrease) in cash and temporary cas Cash and temporary cash investments, beginning o Cash and temporary cash investments, ending bala 1 2 31 4 Net income check figure 5 Balance sheet check figure 6 Cash flow check figure (1,100,000) (85,000) (140,000) 800,000 416,667 1,216,667 201.888 (100,000) (100,000) (100,000) (100,000) 26,087 201,888 227,975 201,888 (912,065) (912,065) 151,900 151,900 NA 157,850 157,850 NA 151,900 157,850 151,900 151,900 309,750 4 Net income check figure 5 Balance sheet check figure 6 Cash flow check figure 7 8 9 Depreciation and amortization o Depreciation expense 1 Amortization expense 2 3 Accumulated depreciation 4 Beginning balance 5 Add: Depreciation expense 6 Less: disposals 7 Ending balance 8 9 Cost of PPE 0 Depreciable property 1 Land 2 Construction in progress 3 Total cost of PPE 4 5 Cost of depreciable PPE 6 BB 7 Purchases 8 Disposals 9 Construction change 0 Land change 1 EB 2 Average cost of PPE 3 1,085,000 15,000 1,170,000 15,000 1,100,000 1,185,000 0 1,100,000 1,085,000 85,000 (15,000) 1,085,000 1,085,000 1,170,000 1,127,500 Net PPE 948, 100 875,250 14.00% Depreciation rate Average useful life 14.00% 7.14 7.14 #DIV/0! Sales proceeds BV Gain loss Cost Acc. Dep BV
