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Given the Financial Information for the A $\text {A.E. Neuman Corporation }$

question 122

Essay

Given the financial information for the A.E.Neuman Corporation,
A)Prepare a Statement of Cash Flows for the year ended December 31,2015.
B)What is the dividend payout ratio?
C)If we increased the dividend payout ratio to 100%,what would happen to retained earnings?
$\text {A.E. Neuman Corporation }$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text { Balance Sheet }$
$\begin{array}{llcc} \text { ASSETS} &2014&2015 \\ \text {Cash } &\$ 45,000&\$ 50,000\\ \text {Marketable Securities } &175,000&160,000\\ \text {Accounts Receivable } &240,000&220,000\\ \text {Inventories } &230,000&275,000\\ \text {Investments } &\underline{70,000} &\underline{55,000}\\ \text {Total current assets } &\$ 760,000&\$ 760,000\\ \text { Plant and Equipment } &1,300,000&1,550,000 \\ \text { Less Accumulated Amortization } &\underline{450,000}&\underline{600,000}\\ \text {Net Plant and Equipment } &\underline{\$ 850,000}&\underline{\$ 950,000}\\ \text {Total Assets } &\$ 1,610,000&\$ 1,710,000\\\end{array}$
$\begin{array}{l}\text { LIABILITIES AND SHAREHOLDERS' EQUITY }\\\begin{array} { l r r } \text { Accounts Payable } & \$ 110,000 & \$ 85,000 \\\text { Notes Payable } & 65,000 & 10,000 \\\text { Accrued Expenses } & 30,000 & 5,000 \\\text { Income Taxes Payable } & 5,000 & 10,000 \\\text { Bonds Payable (2016) } & 800,000 & 900,000 \\\text { Common Stock (100,000 shares) } & 200,000 & 200,000 \\\text { Retained Earnings } & 400,000 & 500,000 \\\text { Total Liabilities and } & & \\\text { Shareholders' Equity } & \underline{\$ 1.610,000} & \underline{\$ 1.710,000 }\\\end{array}\end{array}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ A.E. Neuman Corporation
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Income Statement
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2015
$\begin{array}{lr}\text { Sales } & \$ 5,500,000 \\\text { Less: Cost of Goods Sold } & 4,200,000 \\\text { Gross Profit } & 1,300,000 \\\text { Less: Selling, General \& Administrative Expenses } &\underline{ 260,000 }\\ \text { Operating Profit } & 1,040,000 \\\text { Less: Amortization Expense } &\underline{ 150,000 }\\\text { Eamings Before Interest and Taxes } & 890,000 \\\text { Less: Interest Expense } &\underline{ 90,000 }\\\text { Eamings Before Taxes } & 800,000 \\\text { Less: Taxes (50\%) } & \underline{400,000} \\\text { Net Income } &\underline{\underline{ \$ 400,000 }}\\\end{array}$ A) $Given the financial information for the A.E.Neuman Corporation, A)Prepare a Statement of Cash Flows for the year ended December 31,2015. B)What is the dividend payout ratio? C)If we increased the dividend payout ratio to 100%,what would happen to retained earnings? \text {A.E. Neuman Corporation }\quad \quad \quad \quad \quad \quad \text { Balance Sheet } \begin{array}{llcc} \text { ASSETS} &2014&2015 \\ \text {Cash } &\$ 45,000&\$ 50,000\\ \text {Marketable Securities } &175,000&160,000\\ \text {Accounts Receivable } &240,000&220,000\\ \text {Inventories } &230,000&275,000\\ \text {Investments } &\underline{70,000} &\underline{55,000}\\ \text {Total current assets } &\$ 760,000&\$ 760,000\\ \text { Plant and Equipment } &1,300,000&1,550,000 \\ \text { Less Accumulated Amortization } &\underline{450,000}&\underline{600,000}\\ \text {Net Plant and Equipment } &\underline{\$ 850,000}&\underline{\$ 950,000}\\ \text {Total Assets } &\$ 1,610,000&\$ 1,710,000\\ \end{array} \begin{array}{l} \text { LIABILITIES AND SHAREHOLDERS' EQUITY }\\ \begin{array} { l r r } \text { Accounts Payable } & \$ 110,000 & \$ 85,000 \\ \text { Notes Payable } & 65,000 & 10,000 \\ \text { Accrued Expenses } & 30,000 & 5,000 \\ \text { Income Taxes Payable } & 5,000 & 10,000 \\ \text { Bonds Payable (2016) } & 800,000 & 900,000 \\ \text { Common Stock (100,000 shares) } & 200,000 & 200,000 \\ \text { Retained Earnings } & 400,000 & 500,000 \\ \text { Total Liabilities and } & & \\ \text { Shareholders' Equity } & \underline{\$ 1.610,000} & \underline{\$ 1.710,000 }\\ \end{array} \end{array} \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad A.E. Neuman Corporation \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad Income Statement \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad For the Year Ended December 31, 2015 \begin{array}{lr} \text { Sales } & \$ 5,500,000 \\ \text { Less: Cost of Goods Sold } & 4,200,000 \\ \text { Gross Profit } & 1,300,000 \\ \text { Less: Selling, General \& Administrative Expenses } &\underline{ 260,000 }\\ \text { Operating Profit } & 1,040,000 \\ \text { Less: Amortization Expense } &\underline{ 150,000 }\\ \text { Eamings Before Interest and Taxes } & 890,000 \\ \text { Less: Interest Expense } &\underline{ 90,000 }\\ \text { Eamings Before Taxes } & 800,000 \\ \text { Less: Taxes (50\%) } & \underline{400,000} \\ \text { Net Income } &\underline{\underline{ \$ 400,000 }}\\ \end{array} A) B) \begin{array} { l } \text { Dividend payout ratio } = \quad \text { Dividends paid, } 2015 \\ \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Net Income, } 2015 \\ \quad\quad= \frac { \$ 300,000 } { \$ 400,000 } = 0.75 = 75 \% \\ \end{array} C)The 2015 value for retained earnings would decrease by $100,000.In addition,assets would have to decrease by $100,000 or other liabilities would have to increase by the same amount.$ B) $\begin{array} { l } \text { Dividend payout ratio } = \quad \text { Dividends paid, } 2015 \\\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Net Income, } 2015 \\\quad\quad= \frac { \$ 300,000 } { \$ 400,000 } = 0.75 = 75 \% \\\end{array}$ C)The 2015 value for retained earnings would decrease by $100,000.In addition,assets would have to decrease by $100,000 or other liabilities would have to increase by the same amount.

Definitions:

Ice

Frozen water, often used to cool drinks, reduce swelling, or preserve food.

Complete

Fully finished or encompassing all necessary parts; lacking nothing.

Fracture

A break, breach, or crack in a bone or cartilage.

Across

From one side to the other, typically referring to movement or location spanning a space or distance.

Given the Financial Information for the A A.E. Neuman Corporation \text {A.E. Neuman Corporation }A.E. Neuman Corporation

Definitions:

Given the Financial Information for the A $\text {A.E. Neuman Corporation }$