Question:

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 Jameson Reid to evaluate the performance of the company over the past year.
After rooting through old bank statements, sales receipts, tax returns, and other records,
Jameson has assembled the following information: 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 Jameson's assistant, and he has asked you to prepare the following:

 An income statement for 2015 and 2016.

 A balance sheet for 2015 and 2016.
 Operating cash flow for each year.
 Cash flow from assets for 2016.
 Cash flow to creditors for 2016.
 Cash flow to stockholders for 2016.
Answer:

A) Income Statement
Amount in $
Particulars 2015 2016
Sales 400111 487712
Less:
Cost Of goods sold 203963 257528
Gross Profit 196148 230184
Less:
Depreciation 57576 65076
Interest Expense 12530 14345
Seling & administration expenses 40110 52351
Net Profit 85932 98412
Less: Tax @20% 17186 19682
Net Income 68746 78730
 Less : 50% distributed as dividends 34373 39365
Retained earnings 34373 39365

B) Balance Sheet

Liabilities 2015 2016

Capital 109870 134062

Retained Earnings 34373 73738 (34373+39365)
Long term Debt 128218 143971
Accounts Payable 52015 57708
Notes payable 23708 25885
Total 348184 435364

Assets
Net Fixed Assets 254017 316825
Acccounts receivable 20854 27050
Inventory 43884 60222
Cash 29429 31267
Total 348184 435364

C) Operating Cash flow for 2016

Amount
Net profit as per P&l 98412
Add: Non cash expenditure debited to income
statement
Depreciation 65076
Add: Exp to be shown under other head
Interest expenses 14345
Add/Less : Change in working capital
increase in accounts payable 5693
increase in notes payable 2177
increase in accounts receivable -6196
increase in inventory -16338
Net cash flow from operating activities 163169

D) Cash flow from assets

Opening bal of fixed assets 254017

Less:
Depreciation for the year charged to P&l 65076
Closing Bal 316825
 Additions during the year i.e. cash outflow -127884

E) Cash flow to creditors

Opening Bal 52015

Add : purchases i.e cost of goods sold 257528
309543
Less : closing bal 57708

Cash flow to creditors 251835

F) Cash flow to stock holders

Dividend distributed 39365

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