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Solution To Ch02 P14 Build A Model
Solution To Ch02 P14 Build A Model
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.
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.
c. Construct the statement of cash flows for the most recent year.
Operating Activities
Net Income $31,800
Adjustments:
Noncash adjustment:
Depreciation $6,700
Due to changes in working capital:
Due to change in accounts receivable ($22,943)
Due to change in inventories ($3,468)
Due to change in accounts payable $7,652
Due to change in accruals $7,749
Net cash provided (used) by operating activities $27,490
Investing Activities
Cash used to acquire gross fixed assets ($31,264)
Due to change in short-term investments $3,700
Net cash provided (used) by investing activities ($27,564)
Financing Activities
Due to change in notes payable ($1,500)
Due to change in long-term debt $16,349
Due to change in common stock $10,000
Payment of common dividends ($7,950)
Net cash provided (used) by financing activities $16,899