Question

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,460,000, $152,000 in the common stock account, and $2,770,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed long-term debt of $1,700,000, $162,000 in the common stock account, and $3,070,000 in the additional paid-in surplus account. The 2016 income statement showed an interest expense of $100,000 and the company paid out $157,000 in cash dividends during 2016. The firm’s net capital spending for 2016 was $1,080,000, and the firm reduced its net working capital investment by $137,000. what is the firms ocf?

Answer 1

$650,000

Explanation:

For the computation of operating cash flow first we need to follow some steps which are shown below:-

Step 1

Cash flow of creditors = Interest paid + Long term debt 2015 - Long term debt 2016

= $100,000 + $1,460,000 - $1,700,000

= -$140,000

Step 2

Cash flow to stockholders = Dividend paid + Common stock 2015 + Additional paid in surplus account 2015 - Common stock 2016 - Additional paid in surplus account 2016

= $157,000 + $152,000 + $2,770,000 - $162,000 - $3,070,000

= -$153,000

Step 3

Cash flow from assets = Cash flow of creditors + Cash flow to stockholders

= -$140,000 -$153,000

= -$293,000

and finally

Operating cash flow = Net capital spending + Changes in net working capital - Cash flow from assets

= -$137,000 + $1,080,000 - $293,000

= $650,000

We simply applied the above formulas