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CHAPTER CASE
CASH 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 his
background is in surfing, not business. As a result, the companys financial records are not well
maintained.
The initial investment in Sunset Boards was provided by Tad and his friends and family. Because
the initial investment was relatively small, and the company has made surfboards only for its
own store, the investors havent required detailed financial statements from Tad. But thanks to
word of mouth among professional surfers, sales have picked up recently, and Tad is considering
a major expansion. His plans include opening another surfboard store in Hawaii, as well as
supplying his sticks (surfer lingo for boards) to other sellers.
Tads expansion plans require a significant investment, which he plans to finance with a
combination of additional funds from outsiders plus some money borrowed from banks.
Naturally, the new investors and creditors require more organized and detailed financial
statements than Tad has previously prepared. At the urging of his investors, Tad has hired
financial 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, Paula
has assembled the following information:
2013
2014
Cost of goods sold
$169,969 214,607
Cash
24,524
26,056
Depreciation
47,980
54,230
Interest expense
10,442
11,954
Selling & administrative expenses 33,425
43,626
Accounts payable
43,344
48,090
Net fixed assets
211,680 264,021
Sales
333,426 406,427
Accounts receivable
17,378 22,542
Notes payable
19,757 21,571
Long-term debt
106,848 119,976
Inventory
36,570 50,185
New equity
0 20,160
Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other
original investors, and has a 20 percent tax rate. You are Paulas assistant, and she has asked you
to 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.
QUESTIONS
1.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 expansion
plans?
