Question

The 2018 balance sheet of Speith’s Golf Shop, Inc., showed long-term debt of $5 million, and the 2019 balance sheet showed long-term debt of $5.25 million. The 2019 income statement showed an interest expense of $165,000. The 2018 balance sheet showed $510,000 in the common stock account and $4.6 million in the additional paid-in surplus account. The 2019 balance sheet showed $550,000 and $4.8 million in the same two accounts, respectively. The company paid out $410,000 in cash dividends during 2019. Suppose you also know that the firm’s net capital spending for 2019 was $1,370,000, and that the firm reduced its net working capital investment by $69,000. What was the firm's 2019 operating cash flow, or OCF?

Answer 1

$1,386,000

Step-by-step explanation:

The computation of the operating cash flow is shown below:

But before that following calculations must be done

Cash Flow to Creditors

Cash Flow to Creditors = Interest Expenses Paid - Net Increase in Long term debt

= Interest Expenses Paid - [Ending Long term debt - BEginning Long term Debt]

= $165,000 - [$5,250,000 - $5,000,000]

= $165,000 - $250,000

= -$85,000

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid - Net New Equity

= Dividend Paid - [(Ending Common stock + Ending Additional paid-in surplus account ) - (Opening Common stock + OPening Additional paid-in surplus account )

= $410,000 - [($550,000 + $4,800,000) - ($510,000 + $4,6000,000)]

= $410,000 - [$5,350,000 - $5,110,000]

= $410,000 - $240,000

= $170,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$85,000 + $170,000

= $85,000

Operating Cash Flow

= Operating Cash flows - Change in Net Working capital - Net Capital Spending

$85,000 = Operating cash flow - (-$69,000) - $1,370,000

= $85,000 - $69,000 + $13,70,000

= $1,386,000