The 2008 balance sheet of Maria\'s Tennis Shop, Inc., showed $2.8 million in lon
ID: 2817699 • Letter: T
Question
The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $2.8 million in long-term debt, $780,000 in the common stock account, and $6.05 million in the additional paid-in surplus account. The 2009 balance sheet showed $3.4 million, $985,000, and $7.85 million in the same three accounts, respectively. The 2009 income statement showed an interest expense of $210,000. The company paid out $650,000 in cash dividends during 2009. If the firm's net capital spending for 2009 was $820,000, and the firm reduced its net working capital investment by $135,000, the firm's 2009 operating cash flow, or OCF?
rev: 09_17_2012
$2,015,000
$-3,730,000
$-2,360,000
$-1,745,000
$-1,060,000
The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $2.8 million in long-term debt, $780,000 in the common stock account, and $6.05 million in the additional paid-in surplus account. The 2009 balance sheet showed $3.4 million, $985,000, and $7.85 million in the same three accounts, respectively. The 2009 income statement showed an interest expense of $210,000. The company paid out $650,000 in cash dividends during 2009. If the firm's net capital spending for 2009 was $820,000, and the firm reduced its net working capital investment by $135,000, the firm's 2009 operating cash flow, or OCF?
Explanation / Answer
Net New Debt = Ending Long-term Debt - Beginning Long-term Debt
Net New Debt = $3,400,000 - $2,800,000
Net New Debt = $600,000
Cash Flow to Creditors = Interest Expense - Net New Debt
Cash Flow to Creditors = $210,000 - $600,000
Cash Flow to Creditors = -$390,000
Net New Equity = (Ending Common Stock + Ending Additional Paid-in Capital) - (Beginning Common Stock + Beginning Additional Paid-in Capital)
Net New Equity = ($985,000 + $7,850,000) - ($780,000 + $6,050,000)
Net New Equity = $2,005,000
Cash Flow to Stockholders = Dividend - Net New Equity
Cash Flow to Stockholders = $650,000 - $2,005,000
Cash Flow to Stockholders = -$1,355,000
Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
Cash Flow from Assets = -$390,000 - $1,355,000
Cash Flow from Assets = -$1,745,000
Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
-$1,745,000 = Operating Cash Flow - $820,000 - (-$135,000)
Operating Cash Flow = -$1,060,000
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