Assignment Session 1
1. Building a Balance Sheet [LO1] Penguin Pucks, Inc., has current assets of $5,100, net fixed
assets of $23,800, current liabilities of $4,300, and long-term debt of $7,400. What is the value
of the shareholders’ equity account for this firm? How much is net working capital?
Solution
Based on given information, we can form a balance sheet as followed:
Penguin Pucks Inc.
Balance sheet
Assets
Liabilities and Owner’s Equity
Current assets
$ 5,100
Current liabilities
$ 4,300
Net fixed assets
$23,800
Long-term debt
$ 7.400
Owner’s Equity
$17,200
[= 23,800 – (4,300 + 7,400)]
Total
$28,900
Networking Capital
$
Total
$28,900
800
(= 5100 – 4300)
2. Building an Income Statement [LO1] Papa Roach Exterminators, Inc., has sales of $586,000,
costs of $247,000, depreciation expense of $43,000, interest expense of $32,000, and a tax rate
of 35 percent. What is the net income for this firm?
Solution
Based on given information, we can form an income statement as follow:
Papa Roach Exterminators, Inc.
Income statement
Sales
$586,000
Costs
247,000
Depreciation
Earnings before interest and tax
Interest paid
Taxable income
Taxes
Net income
43,000
$296,000
32,000
$264,000
92,400
$171,600
3. Dividends and Retained Earnings [LO1] Suppose the firm in Problem 2 paid out $73,000 in
cash dividends. What is the addition to retained earnings?
Solution
Addition to retained earnings = Net income – Dividends = 171,600 - 73,000 = $98,600
8. Calculating OCF [LO4] So Long, Inc., has sales of $27,500, costs of $13,280, depreciation
expense of $2,300, and interest expense of $1,105. If the tax rate is 35 percent, what is the
operating cash flow, or OCF?
Solution
Based on given information, we can form an income statement as follow:
So Long, Inc.
Income statement
Sales
$27,000
Costs
13,280
Depreciation
2,300
Earnings before interest and tax
Interest paid
$11,420
2,300
Taxable income
$ 9,120
Taxes
3,192
Net income
$ 5,928
According to the income statement, we can calculate the OCF:
OCF = Earnings before interest and tax + Depreciation – Taxes = 11,420 + 2,300 - 3,192 = $10,528
10. Calculating Additions to NWC [LO4] The 2008 balance sheet of Saddle Creek, Inc., showed current
assets of $2,100 and current liabilities of $1,380. The 2009 balance sheet showed current assets of $2,250
and current liabilities of $1,710. What was the company’s 2009 change in net working capital, or NWC?
Solution
NWC = Current assets – Current liabilities
2008 NWC = 2,100 - 1,380 = $720
2009 NWC = 2,250 - 1,710 = $540
Therefore, the company’s 2009 change in NWC = 2009 NWC – 2008 NWC = 540 - 720 = $-180