The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed long-term debt of $6.
ID: 2773406 • Letter: T
Question
The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed long-term debt of $6.0 million, and the 2012 balance sheet showed long-term debt of $6.25 million. The 2012 income statement showed an interest expense of $205,000. The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed $590,000 in the common stock account and $4.8 million in the additional paid-in surplus account. The 2012 balance sheet showed $630,000 and $5.3 million in the same two accounts, respectively. The company paid out $600,000 in cash dividends during 2012. Suppose you also know that the firm’s net capital spending for 2012 was $1,450,000, and that the firm reduced its net working capital investment by $85,000.
What was the firm’s 2012 operating cash flow, or OCF?
Explanation / Answer
Cash Flow to Creditor = Interest Expense- Ending Long-term Debt+ Beginning Long-term Debt
Cash Flow to Creditor = 205000-6250000 + 6000000
Cash Flow to Creditor = - 45000
Cash Flow to Common Stockholders = Dividends Paid- (Ending Common Stock - Beginning Common Stock)- (Ending additional paid-in surplus - Beginning additional paid-in surplus )
Cash Flow to Common Stockholders = 600000 - ( 630000-590000) - (5300000 - 4800000)
Cash Flow to Common Stockholders = 60000
Cash Flow from Assets = Cash Flow to Creditor + Cash Flow to Common Stockholders
Cash Flow from Assets = -45000 + 60000
Cash Flow from Assets = 15000
Operating Cash Flow = Cash Flow from Assets + net capital spending - net working Capital reduced
Operating Cash Flow = 15000 + 1450000 - 85000
Operating Cash Flow = $ 1,380,000
Answer
Operating Cash Flow = $ 1,380,000
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