The December 31, 2009, balance sheet of Schism, Inc., showed long-term debt of $

Question

The December 31, 2009, balance sheet of Schism, Inc., showed long-term debt of $1.430 million, $146,000 in the common stock account and $2.71 million in the additional paid-in surplus account. The December 31, 2010, balance sheet showed long-term debt of $1.64 million, $156,000 in the common stock account and $3.01 million in the additional paid-in surplus account. The 2010 income statement showed an interest expense of $97,000 and the company paid out $151,000 in cash dividends during 2010. The firm’s net capital spending for 2010 was $1,020,000, and the firm reduced its net working capital investment by $131,000.

What was the firm’s operating cash flow during 2010?

Explanation / Answer

December 31, 2009:
Long-term Debt                           $1,430,000 Common Stock                               $146,000 Additional-Paid in surplus              $2,710,000 December 31, 2010: Long-term Debt                           $1,640,000 Common Stock                               $156,000 Additional-Paid in surplus             $3,001,000 Calculating Net Income: [Opening Common Stock + Net Income - Dividends] = Closing Common Stock Opening Common Stock = [$146,000 + $2,710,000] Opening Common Stock = $2,856,000 Closing Common Stock = [$156,000 + $3,001,000] Closing Common Stock = $3,157,000 Opening Common Stock + Net Income - Dividends = Closing Common Stock $2,856,000 + Net Income - $151,000 = $3,157,000 $2,705,000 + Net Income = $3,157,000 Net Income = [$3,157,000 - $2,705,000] Net Income = $452,000 Calculating Operating Cash Flows: Operating Cash Flows = [Net Income + Interest Expenses -                                                                  Changes in Working Capital] Free Cash Flows = [Operating Cash Flows - Net Capital Spending (or)
                                                                      Capital expenditure] Operating Cash Flows = [$452,000 + $97,000 - $131,000] Operating Cash Flows = [$549,000 - $131,000] Operating Cash Flows = $418,000

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