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Module 5: Q1 (30 points) Tenisa is working on her accounting skills again and wants to finish the cash flow statement for the yearend 2018 before the accountant does.
In 2018, Comfy Home paid for all purchases of long-term fixed assets with cash. The company did not take out any new loans, but paid off part of an existing loan with cash.
Please use the information below to complete the cash flow statement for Tenisa using the indirect method.
(see below the financial statements for questions 2-5 of this assignment)
COMFY HOME COMPANY
As of December 31, 2017
in US$ '000
Current Assets Current Liabilities
Cash $ 110 Current portion of bank loan $ 95
Accounts receivable $ 140 Wages payable $ 60
Inventories $ 310 Accounts Payable $ 90
Prepaid expenses** $ 25 Deferred revenue and gift cards* $ 15
Total Current Assets $ 585 Total Current Liabilities $ 260
Buildings and property $ 450 Bank Loan $ 300
Leasehold Improvements $ 120
(Accumulated Depreciation) $ (154) Owners' equity $ 250
Net $ 416 Retained earnings $ 191
Total Assets $ 1,001 Total liabilities and owners' equity $ 1,001
COMFY HOME COMPANY COMFY HOME COMPANY COMFY HOME COMPANY
Balance Sheet Income Statement Statement of Cash Flows
As of December 31, 2018 For the twelve months ending December 31, 2018 For the twelve months ending December 31, 2018
in US$ '000 in US$ '000 in US$ '000
Current Assets Current Liabilities Total Revenue $ 1,598
Cost of Goods Sold $ 958
Cash $ 129 Current portion of bank loan $ 55 Gross Profit $ 640
Accounts receivable $ 310 Wages payable $ 109 Wages $ 195
Inventories $ 358 Accounts Payable $ 192 Selling expenses $ 48
Prepaid expenses $ 33 Deferred revenue and gift cards $ 13 Administrative expenses $ 93
Insurance expense $ 39
Depreciation expense $ 70
Total Current Assets $ 830 Total Current Liabilities $ 369 Operating Profit $ 195
Interest $ 27
Buildings and properties $ 455 Bank Loan $ 248 Taxes (21%) $ 35
Leasehold Improvements $ 130 Net Income $ 133
(Accumulated Depreciation) $ (224) Owners' equity $ 250
Net $ 361 Retained earnings $ 324
Total Assets $ 1,191 Total liabilities and owners' equity $ 1,191
Increase/decrease in Cash
Cash, ending balance $ 129
Q2. (20 points) Randolf wants to invest in a new roof for the store and the warehouse owned by Comfy Homes.
The estimates for the job indicate that the cost will be $85,000. If Randolf completed the work on December 31, 2018 (and there was not yet any depreciation to record), please show how the work would change Comfy Homes' statements for the year-end 2018?
Assume that Randolf paid by taking out a new loan for $85,000 from the bank. Payment on the loan are not due for 18 months. Please reflect this transaction in your answer as well as the transaction involving the capital investment in the roof.
Answer this question by copying the relevant financial statements from Q1 and pasting them into the space below; then make the changes as needed and highlight them.
Be sure to include the cash flow statement that you completed for Q1.
COMFY HOME COMPANY COMFY HOME COMPANY COMFY HOME COMPANY
Balance Sheet Income Statement Statement of Cash Flows
As of December 31, 2018 For the twelve months ending December 31, 2018 For the twelve months ending December 31, 2018
in US$ '000 in US$ '000 in US$ '000
Current Assets Current Liabilities Total Revenue $ 1,598
Cost of Goods Sold $ 958
Cash $ 129 Current portion of bank loan $ 55 Gross Profit $ 640
Accounts receivable $ 310 Wages payable $ 109 Wages $ 195
Inventories $ 358 Accounts Payable $ 192 Selling expenses $ 48
Prepaid expenses $ 33 Deferred revenue and gift cards $ 13 Administrative expenses $ 93
Insurance expense $ 39
Depreciation expense $ 70
Total Current Assets $ 830 Total Current Liabilities $ 369 Operating Profit $ 195
Interest $ 27
Buildings and properties $ 540 Bank Loan $ 333 Taxes (21%) $ 35
Leasehold Improvements $ 130 Net Income $ 133
(Accumulated Depreciation) $ (224) Owners' equity $ 250
Net $ 446 Retained earnings $ 324
Total Assets $ 1,276 Total liabilities and owners' equity $ 1,276
Increase/decrease in Cash
Q3. (10 points) If Randolf paid for the roof job in cash rather than on credit, what would be the impact at year's end? (choose all that apply)
a. Decrease in net cash from financing activities of $85,000
b. Increase in net cash from investing activities of $85,000
c. No change in net cash
d. Decrease in net cash from operating activities of $17,850 ($85,000 x tax rate of 21%)
e. Decrease in cash by $85,000
Q4. (20 points) Assume Tenisa and Randolf want to take a $60,000 cash disbursement from Comfy Home's owners' equity before the end of 2018. They have plans to buy a home at the seaside.
a. What would be the impact of this transaction at year-end 2018 for Comfy Home? (choose all that apply)
i. a $60,000 decrease in net cash from operating activities
ii a $120,000 decrease in net cash
iii. a $60,000 decrease in net cash from investing activities
iv. a $60,000 decrease in net cash from financing activities
v. a $210,000 decrease in net cash from financing activities
b. If Comfy Home wished to increase its 2018 cash flow from operating activities following the cash disbursement to Tenisa and Randolf for their home, which of the following approaches would be effective? (choose all that apply)
i. Increase Comfy Home accounts payables by delaying payments to creditors until 2019.
ii. Take out an additional $30,000 in bank loans.
iii. Make arrangements with the IRS to defer some of the 2018 taxes payable to 2020.
iv. Sell a non-operating asset and realize a gain on the sale.
v. Increase Comfy Home accounts receivable by giving clients additional time to pay their debt
vi. Decrease prepaids by delaying payment of next year's insurance premium
vii Increase gift card sales
viii. Sell property or buildings (long-term assets) at book value
Q5. (20 points) Please consider Comfy Home's business lifecycle and answer the following:
a. Based only on the Cash Flow Profile of Comfy Home, which of the following stages of the business lifecycle do you think Comfy Home is in?
i. Startup / Fast Growing
ii. Profitable / Growing
iii. Mature / Steady State
iv. In Decline
b. Assume you are the owner of Comfy Home. Based on the stage of the business lifecycle Comfy Home is in and its statement of cash flows, describe, in detail, what your top 2-3 concerns would be with regards to the company's cash flow.
Please explain your concerns and provide possible actions the Company could take to alleviate those concerns.