Solved Question: The December 31, 2015, balance sheet of Schism, Inc.

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Question:

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,385,000, $137,000 in the common stock account, and $2,620,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed long-term debt of $1,550,000, $147,000 in the common stock account, and $2,920,000 in the additional paid-in surplus account. The 2016 income statement showed an interest expense of $92,500 and the company paid out $142,000 in cash dividends during 2016. The firm’s net capital spending for 2016 was $930,000, and the firm reduced its net working capital investment by $122,000. What was the firm’s 2016 operating cash flow, or OCF?

Answer:

Cash Flow to creditors = Interest expense – [Ending Long term debt -beginning long term debt]

= 92500 – [1550000- 1385000]

= 92500 – 165000

= – 72500

cash flow to stockholders = Dividend – [Ending equity- Beginning equity]

= 142000 – [(147000+2920000)-(137000+2620000)]

= 142000- [3067000- 2757000]

= 142000- 310000

= – 168000

Cash Flow from asset = Cash flow to creditors + cash flow to stockholders

= -72500 + (-168000)

= -72500- 168000

= – 240500

Cash flow from asset = Operating cash flow- net capital spending – change in net working capital

-240500 = OCF – 930000 – (-122000)

= OCF -930000+122000

OCF = -240500 +930000-122000

= 567500

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