The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $

Question

The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,390,000, $138,000 in the common stock account and $2,630,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed long-term debt of $1,560,000, $148,000 in the common stock account and $2,930,000 in the additional paid-in surplus account. The 2014 income statement showed an interest expense of $93,000 and the company paid out $143,000 in cash dividends during 2014. The firm’s net capital spending for 2014 was $940,000, and the firm reduced its net working capital investment by $123,000. What was the firm’s operating cash flow during 2014?

Explanation / Answer

Cash Flow to Stockholders= Dividends Paid- (Ending Common Stock - Beginning Common Stock)- (Ending additional paid-in surplus account - Beginning additional paid-in surplus account)

Cash Flow to Stockholders=  143000 - (148000 - 138000) - (2930000-2630000)

Cash Flow to Stockholders= - $ 167000

Cash Flow to Debtholders = Interest Expense - Ending Long-term Debt+ Beginning Long-term Debt

Cash Flow to Debtholders = 93000 - 1560000 + 1390000

Cash Flow to Debtholders = - 77000

Cash Flow from Assets = Cash Flow to Stockholders + Cash Flow to Debtholders

Cash Flow from Assets = -167000-77000

Cash Flow from Assets = - 244000

Cash Flow from Assets = operating cash flow + net working capital investment reduced - firm’s net capital spending

-244000 =  operating cash flow + 123000 - 940000

operating cash flow = 817000 - 244000

Operating cash flow = 573000

Answer

Operating cash flow = 573000

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