uge las d. For a given taxable income, WHIL IS e CASH FLOWS AT WARF COMPUTERS, INC. Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years. this same group has supplied the limited additional investment needed by the company in the form of both equity and short- and long-term debt. Recently the company has developed a vir- tual keyboard (VK). The VK uses sophisticated artificial intelligence algorithms that allow the user to speak naturally and have the computer input the text, correct spelling and grammatical errors, and format the document according to preset user guidelines. The VK even suggests alternative phrasing and sentence structure, and it provides detailed stylistic diagnostics. Based on a proprietary, very advanced software/hardware hybrid technology, the system is a full gen- eration beyond what is currently on the market. To introduce the VK, the company will require significant outside investment. Nick has made the decision to seek this outside financing in the form of new equity invest- ments and bank loans. Naturally, new investors and the banks will require a detailed financial analysis. Your employer, Angus Jones & Partners, LLC, has asked you to examine the financial statements provided by Nick. Here are the balance sheets for the two most recent years and the most recent income statement: WARF COMPUTERS Balance Sheet (s in thousands) 2015 2014 2015 2014 $ 519 247 $ 485 401 $ 452 716 641 92 $1,901 $ 391 668 663 78 $1.800 $ 766 $ 886 $ 330 1,179 $ 159 1.148 Current assets Cash and equivalents Accounts receivable Inventories Other Total current assets Foxed assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Intangible assets and others Total fixed assets $4,148 $3,179 $1,509 $1,307 Current liabilities Accounts payable Accrued expenses Total current liabilities Long-term liabilities Deferred taxes Long-term debt Total long-term liabilities Stockholders' equity Preferred stock Common stock Capital surplus Accumulated retained earnings Less treasury stock Total equity Total abilities and shareholders' equity 1.340 1.092 $2.808 $ 21 126 794 2.478 $2.087 709 $2,796 $ 21 126 779 1,603 793 $3,601 192 $3,227 126 $2.403 $5,502 $4,596 $5,502 14.596 Total assets www.downloadslide.net 43 CHAPTER 2 Financial Statements and Cash Flow Nick has also provided the following information: During the year the company raised $228,000 in new long-term debt and retired $197,000 in long-term debt. The company also sold $15,000 in new stock and repurchased $66,000 in stock. The company purchased $1,482,000 in fixed assets and sold $429,000 in fixed assets. WARF COMPUTERS Income Statement ($ in thousands) Sales Cost of goods sold Selling, general, and administrative expense Depreciation Operating income Other income EBIT Interest expense Pretax income Taxes Current: $605 Deferred: 171 Net income Dividends Retained earnings $7,557 4,456 848 248 $2,005 75 $2.080 137 $1,943 776 $1,167 $ 292 $ 875 Angus has asked you to prepare the financial statement of cash flows and the accounting statement of cash flows. He has also asked you to answer the following questions: 1. How would you describe Warf Computers' cash flows? 2. Which cash flow statement more accurately describes the cash flows at the company? 3. In light of your previous answers, comment on Nick's expansion plans
