Description
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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