Solution 12/7/2012
Chapter: 2
Problem: 14
Key Input Data for Cumberland Industries 2013
(Thousands of dollars)
Sales Revenue
$455,000
Expenses (excluding depreciation) as a percent of sales
85.0%
Net fixed assest
$67,000
Cumberland Industries: Income Statement (Thousands of dollars)
2013
Sales
$455,000
Operating costs excluding depreciation
$386,750
EBITDA
$68,250
Depreciation (Cumberland has no amortization charges)
$6,700
$61,550
$8,550
$53,000
$21,200
$7,950
$23,850
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 $91,450 $74,625
Short-term investments 11,400 15,100
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.
10.0%
40.0%
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
Total common equity $162,624 $128,774
Statement of Cash Flows
(in thousands of dollars)
Operating Activities
Net Income
$31,800
$6,700
($22,943)
($3,468)
$7,652
$7,749
$27,490
Adjustments:
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
($7,950)
$16,899
$16,825
$74,625
c. Construct the statement of cash flows for the most recent year.
Accounts Receivable 108,470 85,527
Inventories 38,450 34,982
Total current assets $249,770 $210,234
Net fixed assets 67,000 42,436
