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 investment 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 detailed financial statements from 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 store 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 than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information:

Sunset Boards currently pays out 40 percent of net income as dividends to Tad and the other original investors, and it has a 30 percent tax rate. You are Christina's assistant, and she has asked you to prepare the following:

1. An income statement for 2014 and 2015.

2. A balance sheet for 2014 and 2015.

3. Operating cash flow for each year.

4. Cash flow from assets for 2015.

5. Cash flow to creditors for 2015.

6. Cash flow to stockholders for 2015.

QUESTIONS

1. How would you describe Sunset Boards' cash flows for 2015? Write a brief discussion.

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

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2014 2015 Cost of goods sold Cash Depreciation Interest expense Selling and administrative Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity 196,619 28,372 55,506 12,067 38,668 20,143 244,881 385,724 20,104 22,855 123,607 38,706 0 $248,263 42,865 62,738 13,831 50,469 34,091 298,350 470,172 26,078 24,955 140,000 52,057 15,000