Chapter case cash flows and financial statements at sunset boards,

Case I is due at the end of this week. Prepare a memo in Word, which answers the questions in the Chapter 2 Case, Cash Flows and Financial Statements at Sunset Boards, Inc., on page 51 of the textbook. Use Excel to solve any financial calculations. You will be graded on correct financial analysis, proper use of technology, business-like presentation of technology, and business-like presentation.

 

Page 51

 

CHAPTER CASE

CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS, INC.

 

Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company’s financial records are not well maintained.

The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers.

Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Paula Wolfe to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Paula has assembled the following information:

 

 

             2013                                2014

Cost of goods sold$169,969  214,607

Cash    24,524    26,056

Depreciation    47,980    54,230

Interest expense    10,442    11,954

Selling & administrative expenses    33,425    43,626

Accounts payable    43,344    48,090

Net fixed assets   211,680   264,021

Sales   333,426   406,427

Accounts receivable     17,378    22,542

Notes payable     19,757    21,571

Long-term debt   106,848  119,976

Inventory     36,570   50,185

New equity              0   20,160

Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 20 percent tax rate. You are Paula’s assistant, and she has asked you to prepare the following:

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