Problem: Given the financial information for the A.E. Neuman Corporation,
(a) Prepare a Statement of Cash Flows for the year ended December 31, 2003.
(b) What is the dividend payout ratio for 2003?
(c) If we increased the dividend payout ratio to 100%, what would happen to retained earnings?
A.E. Neuman Corporation – Balance Sheet
ASSETS 2002 2003
Cash $ 45,000 $ 50,000
Marketable Securities 175,000 160,000
Accounts Receivable 240,000 220,000
Inventories 230,000 275,000
Investments 70,000 55,000
Plant and Equipment 1,300,000 1,550,000
Less Accumulated Depreciation -450,000 -600,000
Net Plant and Equipment 850,000 950,000
Total Assets $1,610,000 $1,710,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts Payable $ 110,000 $ 85,000
Notes Payable 65,000 10,000
Accrued Expenses 30,000 5,000
Income Taxes Payable 5,000 10,000
Bonds Payable (1999) 800,000 900,000
Common Stock (100,000 shares, $1 par) 100,000 100,000
Capital Paid in Excess of Par 100,000 100,000
Retained Earnings 400,000 500,000
Total Liabilities and Stockholders' Equity $1,610,000 $1,710,000
A. E. Neuman Corporation
Income Statement For The Year December 31, 2003
Sales $5,500,000
Less: Cost of Goods Sold 4,200,000
Gross Profit 1,300,000
Less: Selling and Administrative Expenses 260,000
Operating Profit 1,040,000
Less: Depreciation Expenses 150,000
Earnings Before Interest and Taxes 890,000
Less: Interest Expense 90,000
Earnings Before Taxes 800,000
Less: Taxes (50%) 400,000
Net Income $ 400,000
Dividends Paid $ 300,000