Question

Item8 3.57 points Item Skipped eBook AskPrintReferences Check my work Check My Work button is now enabledItem 8Item 8 3.57 points Item Skipped The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,415,000, $143,000 in the common stock account, and $2,680,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet showed long-term debt of $1,610,000, $153,000 in the common stock account and $2,980,000 in the additional paid-in surplus account. The 2019 income statement showed an interest expense of $95,500 and the company paid out $148,000 in cash dividends during 2019. The firm’s net capital spending for 2019 was $990,000, and the firm reduced its net working capital investment by $128,000. What was the firm's 2019 operating cash flow, or OCF?

Answer 1

The firm’s 2019 operating cash flow is $610,500

Step-by-step explanation:

Cash Flow to Creditors

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

= Interest Expenses Paid - [Long term debt at the end - Long term Debt at the Beginning]

= $95,500 - [$1,610,000 - $1,415,000]

= $95,500 - $195,000

= -$99,500

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid – Net New Equity

= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

= $148,000 - [($143,000 + $2,980,000) - ($143,000 + $2,680,000)]

= $148,000 - [$3,123,000- $2,823,000]

= $148,000 - $300,000

= -$152,000

Cash Flow from assets

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

= -$99,500 - $152,000

= -$251,500

Operating Cash Flow

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

-$251,500 = Operating cash flow - (-$128,000) - $990,000

-$251,500 = Operating cash flow + $128,000 - $990,000

Operating cash flow = $990,000 - $128,000 - $251,500

Operating cash flow = $610,500

Therefore, the firm’s 2019 operating cash flow is $610,500