CASE STUDY 1 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 company's 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 haven't 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. Tad's 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 Christina 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, Christina has assembled the following information: Cost of goods sold Cash 2018 2019 $196,619 $248,263 28,372 42,865 Depreciation 55,506 62,738 Interest expense 12,067 13,831 Selling and 38,668 50,469 Accounts payable administrative Net fixed assets Sales Accounts receivable 20,143 34,091 298,350 244,881 385,724 470,172 20,104 26,078 Notes payable Long-term debt Inventory New equity 22,855 24,955 123,607 140,000 38,706 52,057 0 15,000