Solution
Chapter: 2
Problem: 14
Key Input Data for Cumberland Industries 2016
(Thousands of dollars)
Sales Revenue
$455,000
Expenses (excluding depreciation) as a percent of sales
85.0%
Net fixed assest
$67,000
Depr. as a % of net fixed assets
10.0%
Tax rate
40.0%
Interest expense
$8,550
Dividend Payout Ratio
25%
Cumberland Industries: Income Statement (Thousands of dollars) 2016
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.
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.
Inventories 38,450 34,982
Total current assets $249,770 $210,234
Net fixed assets 67,000 42,436
Total assets $316,770 $252,670
Liabilities and equity
Accounts payable $30,761 $23,109
Accruals 30,405 22,656
Notes payable 12,717 14,217
Total current liabilities $73,883 $59,982
Long-term debt 80,263 63,914
Total liabilities $154,146 $123,896
Common stock $100,000 $90,000
Retained earnings 62,624 38,774
Total common equity $162,624 $128,774
Total liabilities and equity $316,770 $252,670
Check for balancing (this should be zero):
Statement of Cash Flows
(in thousands of dollars)
2016
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)
$7,652
$7,749
$27,490
Cash used to acquire gross fixed assets
($31,264)
Due to change in short-term investments
$3,700
($27,564)
Financing Activities
($1,500)
$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
$16,825
$74,625
c. Construct the statement of cash flows for the most recent year.
$91,450
Check: cash balance in statement of cash flows should equal the cash
on balance sheets as shown here:
7/16/2015
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.
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.
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.