2 30 points Balance Sheet and Income Statement of Zwitter In

2. (30 points) Balance Sheet and Income Statement of Zwitter Inc. are given below as of Dec 31 2014 and Dec 31 2015 Calculate 2015 Cash Flow to/from: (4 points) Assets (4 points) Creditors (4 points) Stock Holders (4 points) If Zwitter distributes same percentage of its Net Income as dividends each year, what was the amount of dividends that were distributed in 2014? (4 points) Which accounts would be affected (and by which amount) in the Balance Sheet if Zwitter were to distribute NO dividends in 2015 but retain all earnings (Net Income) within the company? a) b) c) d) e) BALANCE SHEET-ZWITTER COMPANY- in thousand $ 2014 2015 2014 2015 84100.8 45.6 122 146.4 720 812 866.4 500 80.4 1364 1446.8 110132 Accounts Payable 34 40.8 Notes Payable Cash Acc Rec. Inventory Total Current Assets Net Fixed Assets Total Assets 38 20 24 Total Current Liabilities 164196.8 Long Term Debt 1200 1250 Total Liabilities 1364 1446.8Common Stock 690 500 52 Accumulated Retained Earnings Total Liabilities and Owners\' Equity INCOME STATEMENT ZWITTER-in thousands Revenue Cost of Goods Sold Selling, Administrative Costs Depreciation EBIT Interest Income Before Taxes Taxes Net Income 2014 2015 500 600 300 360 60 10 140 170 72 98 14.219.6 56.878.4 50 10 69 71

Solution

(a) Cash flow to/from Assets

Increase in Current Assets = 196.8 - 164 = 32.8

Increase in Current Liabilities = 146.4 - 122 = 24.4

Cash to Working capital = 32.8 - 24.4 = 8.4

Cash to Fixed Assets = Change in Fixed assets - Depreciation of 2015 = 1,250 - 1,200 + 10 = 60

Cash from Operations = EBIT - Tax + Depreciation = 170 - 19.6 + 10 = 160.4

So, Cash flow from Assets = 160.4 - 8.4 - 60 = 92

(b) Cash flow to Creditors = Interest for the year - Increase in Long term Debt = 72 - (720 - 690) = 42

(c) Cash flow to Stock Holders = Dividend for the year - Increase in Stock

Dividend = Net Income - Increase in Accumulated Retained Earnings = 78.4 - (80.4 - 52) = 50

Cash flow to Stock Holders = 50 - (500 - 500) = 50

(d) Net income % = Net income for 2014 / Revenue of 2014 = 56.8/500 = 11.36%

Since dividend % is same as Net income %, so dividend = 11.36% of common stock = 11.36%*500 = 56.8

As we can see that the revenue of 2014 is same as common stock, so the dividend paid to stock holders will be same as Net income in the current scenario.

(e) Dividend paid during the year 2015 = 50

If no dividends are distributed during 2015, affected accounts will be Cash and Accumulated Retained Earnings. Both will increase by 50. So, closing cash will be 182 (132 +50) and Accumulated Retained Earnings will be 130.4 (80.4 + 50).

New Total Assets = New Total Liabilities and Owners\' Equity = 1,446.8 + 50 = 1,496.8