MINICASE 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 compa- ny's financial records are not well maintained. After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information: The initial investment in Sunset Boards was provided by 2018 $322,742 2017 Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards Cost of goods sold only for its own store, the investors haven't required detailed Cash financial statements from Tad. But thanks to word of mouth Depreciation among professional surfers, sales have picked up recently, andInterest expense Tad is considering a major expansion. His plans include open- Selling and administrative50.268 ing another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers. $255,605 36,884 72.158 15,687 55,725 81,559 17,980 65,610 44,318 387,855 611,224 33.901 Accounts payable Net fixed assets 26,186 318,345 Tad's expansion plans require a significant investment which he plans to finance with a combination of additional Sales funds from outsiders plus some money borrowed from banks. Accounts receivable Naturally, the new investors and creditors require more orga- Notes payable 501.441 26,136 29.712 160,689 50,318 nized and detailed financial statements than Tad has previously Long-term debt prepared. At the urging of his investors, Tad has hired finan- Inventory cial analyst Christina Wolfe to evaluate the performance of the company over the past year 175,340 67,674 19,500 New equity 48 PART 1 Oerview of Corporate Finance Sunset Boards currently pays out 40 percent of net income as dividends to Tad and the other original investors, and it has a 21 percent tax rate. You are Christina's assistant, and she has asked you to prepare the following: I. An income statement for 2017 and 2018. 2. A balance sheet for 2017 and 2018. 3. Operating cash flow for each year. 4. Cash flow from assets for 2018. 5. Cash flow to creditors for 2018. 6. Cash flow to stockholders for 2018. QUESTIONS 1. How would you describe Sunset Boards's cash flows for 2018? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans? MINICASE 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 compa- ny's financial records are not well maintained. After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information: The initial investment in Sunset Boards was provided by 2018 $322,742 2017 Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards Cost of goods sold only for its own store, the investors haven't required detailed Cash financial statements from Tad. But thanks to word of mouth Depreciation among professional surfers, sales have picked up recently, andInterest expense Tad is considering a major expansion. His plans include open- Selling and administrative50.268 ing another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers. $255,605 36,884 72.158 15,687 55,725 81,559 17,980 65,610 44,318 387,855 611,224 33.901 Accounts payable Net fixed assets 26,186 318,345 Tad's expansion plans require a significant investment which he plans to finance with a combination of additional Sales funds from outsiders plus some money borrowed from banks. Accounts receivable Naturally, the new investors and creditors require more orga- Notes payable 501.441 26,136 29.712 160,689 50,318 nized and detailed financial statements than Tad has previously Long-term debt prepared. At the urging of his investors, Tad has hired finan- Inventory cial analyst Christina Wolfe to evaluate the performance of the company over the past year 175,340 67,674 19,500 New equity 48 PART 1 Oerview of Corporate Finance Sunset Boards currently pays out 40 percent of net income as dividends to Tad and the other original investors, and it has a 21 percent tax rate. You are Christina's assistant, and she has asked you to prepare the following: I. An income statement for 2017 and 2018. 2. A balance sheet for 2017 and 2018. 3. Operating cash flow for each year. 4. Cash flow from assets for 2018. 5. Cash flow to creditors for 2018. 6. Cash flow to stockholders for 2018. QUESTIONS 1. How would you describe Sunset Boards's cash flows for 2018? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad's expansion plans
