CHAPTER CASECASH 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 hisbackground is in surfing not business. As a result the companys financial records are not wellmaintained.The initial investment in Sunset Boards was provided by Tad and his friends and family. Becausethe initial investment was relatively small and the company has made surfboards only for itsown store the investors havent required detailed financial statements from Tad. But thanks toword of mouth among professional surfers sales have picked up recently and Tad is consideringa major expansion. His plans include opening another surfboard store in Hawaii as well assupplying his sticks (surfer lingo for boards) to other sellers.Tads expansion plans require a significant investment which he plans to finance with acombination of additional funds from outsiders plus some money borrowed from banks.Naturally the new investors and creditors require more organized and detailed financialstatements than Tad has previously prepared. At the urging of his investors Tad has hiredfinancial 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 Paulahas assembled the following information:20132014Cost of goods sold$169 969 214 607Cash24 52426 056Depreciation47 98054 230Interest expense10 44211 954Selling & administrative expenses 33 42543 626Accounts payable43 34448 090Net fixed assets211 680 264 021Sales333 426 406 427Accounts receivable17 378 22 542Notes payable19 757 21 571Long-term debt106 848 119 976Inventory36 570 50 185New equity0 20 160Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the otheroriginal investors and has a 20 percent tax rate. You are Paulas assistant and she has asked youto prepare the following:1. An income statement for 2013 and 2014.2. A balance sheet for 2013 and 2014.3. Operating cash flow for each year.4. Cash flow from assets for 2014.5. Cash flow to creditors for 2014.6. Cash flow to stockholders for 2014.QUESTIONS1.How would you describe Sunset Boards cash flows for 2014? Write a brief discussion.2.In light of your discussion in the previous question what do you think about Tads expansionplans?
