Question

Refer to the following items on the balance sheets of a firm for the years ending December 31, 2018 and 2019.

Item 2018 2019
Accounts Payable $729,500 $917,300
Long Term Debt $1,267,700 $1,093,400
Common Stock ($1 par) $2,184,000 $2,471,300
Retained Earnings $3,227,100 $3,419,800
If the firm's interest expense on its 2019 income statement was $312,920, calculate the net cash flow to the firm's creditors in 2019.
a) $312,920
b) $138,620
c) $425,920
d) $487,220

Answer 1

Answer: d) $487,220

Step-by-step explanation:

The net cash flow to creditors in 2019 is calculated by the formula;

= Long term debt in 2018 - Long term debt in 2019 + Interest expense in 2019

= 1,267,700 - 1,093,400 + 312,920

= $‭487,220‬