Question

During 2010, Raines Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $498,000, $125,000, and $105,000, respectively. In addition, the company had an interest expense of $58,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)

Suppose Raines Umbrella Corp. paid out $62,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt?

Net new long-term debt$

Answer 1

New long-term debt = 23000 dollars

Step-by-step explanation:

No data related to past year has been given so using data releted to this years we have to see whether any change has been made in company debt.

As mentioned in question that no asset has been acquired during the year and no financing from working capital and by issuing new stocks has been raised. So any cash outflow/ cash inflow would have changes debt.

So calculating net cash flow to determine debt change.

= Sales-all expenses excluding dep-divident payment

= (23,000)

So it show that debt has increased by 23,000 dollars.

* All payments against sales and expenses in cash as working capital is nill

Please also note that due to net loss no tax has been paid.