30 Brooks ◼ Financial Management: Core Concepts, 4e
ANSWER
a. The Balance Sheets for the two years are:
Assets: 2016 2017
Current Assets
Cash $1,210 $1,490
Long-Term Assets
Plant, Prop. & Equip $8,675 $9,840
Liabilities
Current Liabilities
Accounts Payable $2,900 $3,210
Long-Term Liabilities
Owner’s Equity
Common Stock $4,778 $7,278
b. The Working Capital Accounts are Cash, Accounts Receivable, Inventory, and
Accounts Payable.
c. The Net Working Capital for 2016 and 2017:
Chapter 2 ◼ Financial Statements 31
4. Income statement. From the following income statement accounts
a. produce the income statement for the year
b. produce the operating cash flow for the year
Income Statement Accounts for the Year Ending 2017
Cost of Goods Sold $1,419,000
Interest Expense $ 288,000
Taxes $ 318,000
Revenue $2,984,000
SG&A Expenses $ 454,000
Depreciation $ 258,000
ANSWER
a. Income Statement
Revenue $2,984,000
Cost of Goods Sold $1,419,000
SG&A Expenses $ 454,000
b. Operating Cash Flow
5. Operating cash flow. Find the operating cash flow for the year for Harper Brothers
Incorporated if they had sales revenue of $300,000,000, cost of goods sold of
$140,000,000, sales and administrative costs of $40,000,000, depreciation expense of
$65,000,000, and a tax rate of 40%.
ANSWER
Using income statement format we have,
Sales $300,000,000
COGS $140,000,000
SG&A $ 40,000,000
34 Brooks ◼ Financial Management: Core Concepts, 4e
Balance Sheet 12/31/2017
Assets: Liabilities:
Cash $ 26,000 Notes Payable $ 12,000
Accounts Rec. $ 19,000 Accounts Payable $ 24,000
9. Statement of retained earnings. Complete the statement of retained earnings for 2017
and determine the dividends paid last year.
ANSWER
10. Fixed assets. What are the net fixed assets for the years 2016 and 2017?
Chapter 2 ◼ Financial Statements 41
Notes Payable
$ 390,000.00
$ 210,000.00
$(180,000.00)
$(180,000.00)
Total Current Liabilities
$ 809,000.00
$ 889,000.00
$ 80,000.00
$ 80,000.00
Long-Term Liabilities
Long-Term Debt
$3,540,000.00
$3,912,000.00
$ 372,000.00
$ 372,000.00
TOTAL LIABILITIES
$4,349,000.00
$4,801,000.00
$ 452,000.00
$ 452,000.00
Owner’ Equity:
Common Stock
$ 330,000.00
$ 330,000.00
$ –
$ –
Retained Earnings
$ 406,000.00
$ 701,000.00
$ 295,000.00
$ 295,000.00
TOTAL OWNER’s
EQUITY
$ 736,000.00
$1,031,000.00
$ 295,000.00
$ 295,000.00
TOTAL LIAB. AND O.E.
$ 5,085,000.00
$ 5,832,000.00
$ 747,000.00
$ 747,000.00
Part (B)
PART B:
2016
2017
Change
Net Working Capital
$ 433,000.00
$ 901,000.00
$ 468,000.00
Capital Spending
2011 Fixed Assets
$ 4,975,000.00
plus 2011 Intangible Assets
$ 431,000.00
minus 2010 Fixed Assets
$ 4,387,000.00
minus 2010 Intangible Assets
$ 465,000.00
Change In Capital Spending
$ 554,000.00
Cash Flow From Assets:
OCF
$ 389,000.00
minus increase in NWC
$ 468,000.00
minus increase in capital sp.
$ 554,000.00
Cash Flow From Assets
$ (633,000.00)
42 Brooks ◼ Financial Management: Core Concepts, 4e
Solutions to Mini-Case Questions
Hudson Valley Realty
This case focuses on the interpretation rather than the preparation of financial statements.
1. Look at Vermont Heritage’s sales revenue, EBIT, and net income over the three–
year period. Would you classify it as a growing, diminishing, or a stable
company?
Sales were up a little in 2016, down a little in 2017. Overall, sales are trendless. EBIT
2. Look at Vermont Heritage’s expense accounts, cost of goods sold, and selling
and administrative expenses. Do they seem to be roughly proportional to sales?
Do any of these categories seem to be growing out of control?
Cost of goods sold decreases when sales decrease, which suggests that sales revenue
3. Depreciation expense is the same for all three years. What does that tell you
about Vermont Heritage’s growth?
It is highly unusual for depreciation expense to remain the same, at least when the
4. Look at Vermont Heritage’s EBIT, interest expense, and debt accounts (current
liabilities, long-term debt, and other liabilities) over the three-year period.
Comparing debt to equity, do you think the company seems to have excessive
debt? Would you expect the company to have any problems meeting its interest
payments?
Interest expense is minimal compared to EBIT, which shows that the company is in a
5. Dividends have increased as a percentage of net income. Why do you think the
company decided to pay out more of its earnings to shareholders?
