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    Ch02 P20 Build A Model

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    Lydia Perez
    Britton String Corp manufactures musical instrument and tennis strings. Their income statement shows $880 million in sales, $748 million in operating costs, $30 million in depreciation, $22 million in interest expenses, $60 million in net income, $24 million in dividends, and $36 million in retained earnings. Their balance sheet shows $36 million issued in common stock, $285 million in common stock, $146 million in retained earnings, $431 million in total common equity, and $800 million in total liabilities and equity. Their statement of cash flows shows $40 million from operations, -$72 million from investing, $42 million from financing, and a $10 million increase in cash.

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    Ch02 P20 Build A Model

    Uploaded by

    Lydia Perez
    515 views6 pages
    Britton String Corp manufactures musical instrument and tennis strings. Their income statement shows $880 million in sales, $748 million in operating costs, $30 million in depreciation, $22 million in interest expenses, $60 million in net income, $24 million in dividends, and $36 million in retained earnings. Their balance sheet shows $36 million issued in common stock, $285 million in common stock, $146 million in retained earnings, $431 million in total common equity, and $800 million in total liabilities and equity. Their statement of cash flows shows $40 million from operations, -$72 million from investing, $42 million from financing, and a $10 million increase in cash.

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    Britton String Corp manufactures musical instrument and tennis strings. Their income statement shows $880 million in sales, $748 million in operating costs, $30 million in depreciation, $22 million in interest expenses, $60 million in net income, $24 million in dividends, and $36 million in retained earnings. Their balance sheet shows $36 million issued in common stock, $285 million in common stock, $146 million in retained earnings, $431 million in total common equity, and $800 million in total liabilities and equity. Their statement of cash flows shows $40 million from operations, -$72 million from investing, $42 million from financing, and a $10 million increase in cash.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    515 views6 pages

    Ch02 P20 Build A Model

    Uploaded by

    Lydia Perez
    Britton String Corp manufactures musical instrument and tennis strings. Their income statement shows $880 million in sales, $748 million in operating costs, $30 million in depreciation, $22 million in interest expenses, $60 million in net income, $24 million in dividends, and $36 million in retained earnings. Their balance sheet shows $36 million issued in common stock, $285 million in common stock, $146 million in retained earnings, $431 million in total common equity, and $800 million in total liabilities and equity. Their statement of cash flows shows $40 million from operations, -$72 million from investing, $42 million from financing, and a $10 million increase in cash.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 6

    Build a Model

    Chapter: 2
    Problem: 20

    a. Britton String Corp. manufactures specialty strings for musical instruments and tennis racquets. Its most
    recent sales were $880 million; operating costs (excluding depreciation) were equal to 85% of sales; net fixed
    assets were $300 million; depreciation amounted to 10% of net fixed assets; interest expenses were $22
    million; the state-plus-federal corporate tax rate was 25%; and it paid 40% of its net income out in dividends.
    Given this information, construct its income statement. Also calculate total dividends and the addition to
    retained earnings. Report all dollar figures in millions.

    The input information required for the problem is outlined in the "Key Input Data" section below. Using this data and
    the balance sheet above, we constructed the income statement shown below.

    Key Input Data for Britton String Corp. 2020


    (Millions of dollars)
    Sales Revenue $880
    Expenses (excluding depreciation) as a percent of sales 85.0%
    Net fixed assets $300
    Depr. as a % of net fixed assets 10.0%
    Tax rate 25.0%
    Interest expense $22
    Dividend Payout Ratio 40%

    Britton String Corp.: Income Statement 2020


    (Millions of dollars)
    Sales $880
    Operating costs excluding depreciation $748
    EBITDA $132
    Depreciation (Cumberland has no amortization charges) 30
    EBIT $102
    Interest expense $22
    EBT $80
    Taxes (25%) $20
    Net income $60

    Common dividends $24


    Addition to retained earnings $36

    b. Britton String’s partial balance sheets follow. Britton issued $36 million of new common stock in the most
    recent year. Using this information and the results from part a, fill in the missing values for common stock,
    retained earnings, total common equity, and total liabilities and equity.

    Dollar value of common stock issued (in millions of dollars) $36

    Britton String Corp: December 31 Balance Sheets


    (Millions of dollars)
    2020 2019
    Assets
    Cash and cash equivalents $70 $60
    Short-term investments $46 $42
    Accounts Receivable $120 $140
    Inventories $264 $196
    Total current assets $500 $438
    Net fixed assets $300 $262
    Total assets $800 $700

    Liabilities and equity


    Accounts payable $73 $64
    Accruals $49 $60
    Notes payable $30 $39
    Total current liabilities $152 $163
    Long-term debt $217 $178
    Total liabilities $369 $341
    Common stock $285 $249
    Retained earnings $146 $110
    Total common equity $431 $359
    Total liabilities and equity $800 $700

    Always check for balancing (these should be zero): $0.0000 $0.0000

    c. Construct the statement of cash flows for the most recent year.

    Statement of Cash Flows


    (in thousands of dollars)
    2020
    Operating Activities
    Net Income $60
    Adjustments:
    Noncash adjustment:
    Depreciation $30
    Due to changes in working capital:
    Due to change in accounts receivable $20
    Due to change in inventories ($68)
    Due to change in accounts payable $9
    Due to change in accruals ($11)
    Net cash provided (used) by operating activities $40

    Investing Activities
    Cash used to acquire gross fixed assets ($68)
    Due to change in short-term investments ($4)
    Net cash provided (used) by investing activities ($72)

    Financing Activities
    Due to change in notes payable ($9)
    Due to change in long-term debt $39
    Due to change in common stock $36
    Payment of common dividends ($24)
    Net cash provided (used) by financing activities $42

    Net increase/decrease in cash $10


    Add: Cash balance at the beginning of the year 60
    Cash balance at the end of the year $70
    3/7/2020

    nis racquets. Its most


    o 85% of sales; net fixed
    xpenses were $22
    come out in dividends.
    and the addition to

    ow. Using this data and

    mon stock in the most


    s for common stock,

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