The 2008 balance sheet of Maria\'s Tennis Shop, Inc., showed $2.6 million in lon
ID: 2794960 • Letter: T
Question
The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $2.6 million in long-term debt, $750,000 in the common stock account, and $6.2 million in the additional paid-in surplus account. The 2009 balance sheet showed $4.2 million, $935,000, and $7.8 million in the same three accounts, respectively. The 2009 income statement showed an interest expense of $310,000. The company paid out $520,000 in cash dividends during 2009. If the firm's net capital spending for 2009 was $670,000, and the firm reduced its net working capital investment by $155,000, the firm's 2009 operating cash flow, or OCF? $2,865,000 $-2,040,000 $-4,110,000 $-3,080,000 $-2,555,000
Explanation / Answer
Answer :- Option B). $ - 2,040,000.
Explanation :- Cash flow to creditors = Interest expense - Net new borrowing.
= 310000 - (4200000 - 2600000)
= 310000 - 1600000
= (-) 1290000.
Cash flow to stockholders = Dividend paid - Net new equity.
= 520000 - [ (935000 + 7800000) - (750000 + 6200000) ]
= 520000 - [ 8735000 - 6950000 ]
= 520000 - 1785000
= (-) 1265000.
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
= (-) 1290000 + (-) 1265000
= (-) 2555000.
Cash flow from assets = Operating cash flow - Change in net working capital - Net capital spending.
(-) 2555000 = Operating cash flow - (-) 155000 - 670000
(-) 2555000 = Operating cash flow + 155000 - 670000
(-) 2555000 = Operating cash flow - 515000
Operating cash flow = (-) 2555000 + 515000
Operating cash flow = (-) 2040000.
Conclusion :- Operating cash flow of the firm for Year 2009 = $ -2,040,000. (Option B).
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