The December 31, 2009, balance sheet of Schism, Inc., showed long-term debt of $

Question

The December 31, 2009, balance sheet of Schism, Inc., showed long-term debt of $1.375 million, $135,000 in the common stock account and $2.6 million in the additional paid-in surplus account. The December 31, 2010, balance sheet showed long-term debt of $1.53 million, $145,000 in the common stock account and $2.9 million in the additional paid-in surplus account. The 2010 income statement showed an interest expense of $91,500 and the company paid out $140,000 in cash dividends during 2010. The firm’s net capital spending for 2010 was $910,000, and the firm reduced its net working capital investment by $120,000.

Explanation / Answer

Cash flow to creditors = Interest expense – Net new borrowings

                                       = 91,500 – (1,530,000-1,375,000)

                                       = 91,500 -155,000

                                       = -63,500

Cash flow to shareholders = Dividend paid – net new equity raised

                                                = 140,000 – (145,000 +2,900,000- 135,000 -2,600,000)

                                                = 140,000 – 310,000

                                                = -170,000

Now we can calculate operating cash flow using the following formula:

Operating cash flow = Cash flow to creditors + Cash flow to shareholders + net capital spending – Reduction in working capital

                                    = -63,500 -170,000 + 910,000 -120,000

                                    = 556,500

Therefore, operation cash flow would be 556,500.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.