The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $

Question

The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,430,000, $146,000 in the common stock account and $2,710,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed long-term debt of $1,640,000, $156,000 in the common stock account and $3,010,000 in the additional paid-in surplus account. The 2014 income statement showed an interest expense of $97,000 and the company paid out $151,000 in cash dividends during 2014. The firm’s net capital spending for 2014 was $1,020,000, and the firm reduced its net working capital investment by $131,000. (Enter your answer as directed, but do not round intermediate calculations.)

What was the firm’s operating cash flow during 2014? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,430,000, $146,000 in the common stock account and $2,710,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed long-term debt of $1,640,000, $156,000 in the common stock account and $3,010,000 in the additional paid-in surplus account. The 2014 income statement showed an interest expense of $97,000 and the company paid out $151,000 in cash dividends during 2014. The firm’s net capital spending for 2014 was $1,020,000, and the firm reduced its net working capital investment by $131,000. (Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

From Balance sheet we know ,

Current Assets + Capital Investment= Current Liabilities+ long-term debt +  common stock account + additional paid-in surplus account+ Retained Earnings

=>Current Assets-Current Liabilities + Capital Investment= long-term debt +  common stock account + additional paid-in surplus account+ Retained Earnings

=>Working Capital + Capital Investment= long-term debt +  common stock account + additional paid-in surplus account+ Retained Earnings (as Current Assets-Current Liabilities =Working Capital )

Take change on both sides => change in (Working Capital + Capital Investment)= change in(long-term debt +  common stock account + additional paid-in surplus account+ Retained Earnings )

=>change in Working Capital + change in Capital Investment= change in long-term debt +  change in common stock account +change in additional paid-in surplus account+change in Retained Earnings

=>change in Working capital + net capital spending-depreciation=change in long-term debt + change in common stock account +change in additional paid-in surplus account+ change in Retained Earnings ..(as change in Capital Investment= net capital spending-depreciation)

change in Retained Earnings+depreciation = change in Working capital + net capital spending-change in  long-term debt-change in common stock account -change in additional paid-in surplus account

change in Working capital in 2014=working capital in 2014-working capital in 2013= -131,000

net capital spending in 2014= 1,020,000

change in  long-term debt in 2014=long-term debt in 2014-long-term debt in 2013=1,640,000-1,430,000= 210000

change in common stock account= common stock account in 2014- common stock account in 2013=156,000 -146,000 = 10000

change in additional paid-in surplus account= additional paid-in surplus account in 2014- additional paid-in surplus account in 2013= 3,010,000 - 2,710,000 = 300000

thus  change in Retained Earnings in 2014+depreciation = -131,000 +1,020,000-210000-10000-300000 = 369000

Thus NetIncome attribtable to Retained Earnings in 2014+depreciation=369000

Total NetIncome attribtable to Dividends in 2014=151,000

Total NetIncome in 2014+depreciation= NetIncome attribtable to Retained Earnings in 2014+depreciation + NetIncome attribtable to Dividends in 2014= 369000+ 151,000 =520000

firm’s operating cash flow during 2014= Total NetIncome in 2014+depreciation -change in net working capital in 2014

firm’s operating cash flow during 2014= 520000 - (-131,000)= 520000 +131,000 = 651000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.