Chapter:

Problem:

2
14

a. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation)
were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed
assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and
Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's
income statement. Also calculate total dividends and the addition to retained earnings.
The input information required for the problem is outlined in the "Key Input Data" section below. Using this data
and the balance sheet above, we constructed the income statement shown below.
Key Input Data for Cumberland Industries
(Thousands of dollars)
Sales Revenue
Expenses (excluding depreciation) as a percent of sales
Net fixed assest
Depr. as a % of net fixed assets
Tax rate
Interest expense
Dividend Payout Ratio
Cumberland Industries: Income Statement (Thousands of dollar
Sales
Operating costs excluding depreciation
EBITDA
Depreciation (Cumberland has no amortization charges)
EBIT
Interest expense
EBT
Taxes (40%)
Net income

2013
$455,000
85.0%
$67,000
10.0%
40.0%
$8,550
25%
2013

Common dividends
Addition to retained earnings

b. Cumberland Industries' partial balance sheets are shown below. Cumberland issued $10,000,000 of new
common stock in the most recent year. Using this information and the results from part a, fill in the
missing values for common stock, retained earnings, total common equity, and total liabilities and equity.
Dollar value of common stock issued (in thousands of dollars)

$10,000

Cumberland Industries December 31 Balance Sheets

(in thousands of dollars)
2013

2012

Assets
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and equity
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities and equity
Check for balancing (this should be zero):
c. Construct the statement of cash flows for the most recent year.
Statement of Cash Flows
(in thousands of dollars)
Operating Activities
Net Income
Adjustments:
Noncash adjustment:
Depreciation
Due to changes in working capital:
Due to change in accounts receivable
Due to change in inventories
Due to change in accounts payable
Due to change in accruals
Net cash provided (used) by operating activities
Investing Activities
Cash used to acquire gross fixed assets
Due to change in short-term investments
Net cash provided (used) by investing activities
Financing Activities
Due to change in notes payable
Due to change in long-term debt
Due to change in common stock

$91,450
11,400
108,470
38,450
$249,770
67,000
$316,770

$74,625
15,100
85,527
34,982
$210,234
42,436
$252,670

$30,761
30,405
12,717
$73,883
80,263
$154,146

$23,109
22,656
14,217
$59,982
63,914
$123,896
$90,000
38,774
$128,774
$252,670

Payment of common dividends

Net cash provided (used) by financing activities
Net increase/decrease in cash
Add: Cash balance at the beginning of the year
Cash balance at the end of the year

12/7/2012

excluding depreciation)
nted to 10% of net fixed
e was 40% and
construct Cumberland's
ings.
below. Using this data

sued $10,000,000 of new

m part a, fill in the
tal liabilities and equity.