The following information has been reported by Laporte Inc. on its statements of financial position at December 31, 2016 and 2017, and on its statement of earnings for the year ended December 31, 2017. Amounts are in millions of dollars:
Statements of Financial Position 2017 2016 Cash $ 114 $ 80 Accounts receivable 46 36 Merchandise inventory 40 44 Long-term investments - 30 Property, plant, and equipment 232 190 Accumulated depreciation (90 ) (108 ) Total assets $ 342 $ 272 Accounts payable $ 36 62 Income taxes payable 15 16 Long-term borrowings 92 32 Contributed capital 139 112 Retained earnings 60 50 Total liabilities and shareholdersâ equity $ 342 $ 272 Statement of Earnings Sales $ 176 Cost of sales (96 ) Gross profit 80 Depreciation expense (22 ) Other operating expenses (40.0 ) Earnings from operations 18.0 Gain on sale of investments 18 Loss on sale of equipment (14 ) Earnings before income tax 22.0 Income tax expense 8.8 Net earnings $ 13.2 Additional information is as follows: a. Old equipment was disposed of for cash during 2017. It had an original cost of $52 and an accumulated depreciation of $40. b. A new building was acquired during the year in exchange for a long-term note for $60, payable in five years. In addition, new equipment was purchased for cash.
Required: 1. Prepare a statement of cash flows for Laporte Inc. for the year ended December 31, 2017 by using the direct method. (Negative answers should be indicated by a minus sign. Enter your answers in millions.)
| The following information has been reported by Laporte Inc. on its statements of financial position at December 31, 2016 and 2017, and on its statement of earnings for the year ended December 31, 2017. Amounts are in millions of dollars: |
| Statements of Financial Position | ||||||||||
| 2017 | 2016 | |||||||||
| Cash | $ | 114 | $ | 80 | ||||||
| Accounts receivable | 46 | 36 | ||||||||
| Merchandise inventory | 40 | 44 | ||||||||
| Long-term investments | - | 30 | ||||||||
| Property, plant, and equipment | 232 | 190 | ||||||||
| Accumulated depreciation | (90 | ) | (108 | ) | ||||||
| Total assets | $ | 342 | $ | 272 | ||||||
| Accounts payable | $ | 36 | 62 | |||||||
| Income taxes payable | 15 | 16 | ||||||||
| Long-term borrowings | 92 | 32 | ||||||||
| Contributed capital | 139 | 112 | ||||||||
| Retained earnings | 60 | 50 | ||||||||
| Total liabilities and shareholdersâ equity | $ | 342 | $ | 272 | ||||||
| Statement of Earnings | ||||||||||
| Sales | $ | 176 | ||||||||
| Cost of sales | (96 | ) | ||||||||
| Gross profit | 80 | |||||||||
| Depreciation expense | (22 | ) | ||||||||
| Other operating expenses | (40.0 | ) | ||||||||
| Earnings from operations | 18.0 | |||||||||
| Gain on sale of investments | 18 | |||||||||
| Loss on sale of equipment | (14 | ) | ||||||||
| Earnings before income tax | 22.0 | |||||||||
| Income tax expense | 8.8 | |||||||||
| Net earnings | $ | 13.2 | ||||||||
| ||||||||||
Related questions
The comparative statements of financial position of Mikos Inc. as at December 31, 2017 and 2018, and its statement of earnings for the year ended December 31, 2018, are presented below:
| MIKOS INC. | ||||||
| Comparative Statements of Financial Position | ||||||
| December 31 | ||||||
| 2018 | 2017 | |||||
| Assets | ||||||
| Cash | $ | 10,600 | $ | 18,600 | ||
| Short-term investments | 72,200 | 40,800 | ||||
| Accounts receivable | 76,000 | 32,400 | ||||
| Inventories, at cost | 57,200 | 41,600 | ||||
| Prepaid expenses | 5,600 | 9,200 | ||||
| Land | 51,400 | 78,000 | ||||
| Property, plant, and equipment, net | 286,400 | 187,000 | ||||
| Intangible assets | 25,600 | 31,200 | ||||
| $ | 585,000 | $ | 438,800 | |||
| Liabilities and Shareholdersâ Equity | ||||||
| Accounts payable | $ | 18,600 | $ | 43,200 | ||
| Income tax payable | 9,200 | 2,600 | ||||
| Accrued liabilities | 11,600 | -0- | ||||
| Long-term notes payable | 126,000 | 182,000 | ||||
| Contributed capital | 232,000 | 68,000 | ||||
| Retained earnings | 187,600 | 143,000 | ||||
| $ | 585,000 | $ | 438,800 | |||
| MIKOS INC. | |||||
| Statement of Earnings | |||||
| For the Year Ended December 31, 2018 | |||||
| Sales | $ | 898,000 | |||
| Cost of sales | $ | 446,000 | |||
| Amortization expenseâintangible assets | 5,600 | ||||
| Depreciation expenseâproperty, plant, and equipment | 34,600 | ||||
| Operating expenses | 237,000 | ||||
| Interest expense | 13,600 | 736,800 | |||
| Earnings before income taxes | 161,200 | ||||
| Income tax expense | 48,360 | ||||
| Net earnings | $ | 112,840 | |||
| Additional information is as follows: | |
| a. | Land was sold for cash at its carrying amount. |
| b. | The short-term investments will mature in February 2019. |
| c. | Cash dividends were declared and paid in 2018. |
| d. | New equipment with a cost of $167,600 was purchased for cash, and old equipment was sold at its carrying amount. |
| e. | Long-term notes of $18,000 were paid in cash, and notes of $38,000 were converted to shares. |
| 1. | Prepare a statement of cash flows for Mikos Inc. for the year ended December 31, 2018 by using the indirect method. (Negative answers should be indicated by a minus sign.) |
Excess capacity
Krogh Lumber's 2016 financial statements are shown here.
| Krogh Lumber: Balance Sheet as of December 31, 2016 (Thousands of Dollars) | ||||
| Cash | $1,800 | Accounts payable | $7,200 | |
| Receivables | 10,800 | Notes payable | 3,472 | |
| Inventories | 12,600 | Accrued liabilities | 2,520 | |
| Total current assets | $25,200 | Total current liabilities | $13,192 | |
| Mortgage bonds | 5,000 | |||
| Net fixed assets | 21,600 | Common stock | 2,000 | |
| Retained earnings | 26,608 | |||
| Total assets | $46,800 | Total liabilities and equity | $46,800 | |
| Krogh Lumber: Income Statement for December 31, 2016 (Thousands of Dollars) | |||
| Sales | $36,000 | ||
| Operating costs including depreciation | 30,783 | ||
| Earnings before interest and taxes | $5,217 | ||
| Interest | 1,017 | ||
| Earnings before taxes | $4,200 | ||
| Taxes (40%) | 1,680 | ||
| Net income | $2,520 | ||
| Dividends (60%) | $1,512 | ||
| Addition to retained earnings | $1,008 | ||
Assume that the company was operating at full capacity in 2016 with regard to all items except fixed assets; fixed assets in 2016 were being utilized to only 61% of capacity. By what percentage could 2017 sales increase over 2016 sales without the need for an increase in fixed assets? Round your answer to two decimal places.
%
Now suppose 2017 sales increase by 20% over 2016 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 84% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2017 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 10%. Any stock issuances or repurchases will be made at the firm's current stock price of $40. Develop Krogh's projected financial statements. What are the balances of notes payable, bonds, common stock, and retained earnings? Round your answers to the nearest hundredth of thousand of dollars.
| Krogh Lumber Pro Forma Income Statement December 31, 2017 (Thousands of Dollars) | ||
| 2016 | 2017 | |
| Sales | $36,000 | $ |
| Operating costs (includes depreciation) | 30,783 | $ |
| EBIT | $5,217 | $ |
| Interest expense | 1,017 | $ |
| EBT | $4,200 | $ |
| Taxes (40%) | 1,680 | $ |
| Net Income | $2,520 | $ |
| Dividends | $1,512 | $ |
| Addition to RE | $1,008 | $ |
| Krogh Lumber Pro Forma Balance Statement December 31, 2017 (Thousands of Dollars) | ||
| 2016 | 2017 | |
| Cash | $1,800 | $ |
| Accounts receivable | 10,800 | $ |
| Inventories | 12,600 | $ |
| Fixed assets | 21,600 | $ |
| Total assets | $46,800 | $ |
| Payables + accruals | $9,720 | $ |
| Short-term bank loans | 3,472 | $ |
| Total current liabilities | $13,192 | $ |
| Long-term bonds | 5,000 | $ |
| Total debt | $18,192 | $ |
| Common stock | 2,000 | $ |
| Retained earnings | 26,608 | $ |
| Total common equity | $28,608 | $ |
| Total liab. and equity | $46,800 | $ |
