Question

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,445,000, $149,000 in the common stock account, and $2,740,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed long-term debt of $1,670,000, $159,000 in the common stock account, and $3,040,000 in the additional paid-in surplus account. The 2016 income statement showed an interest expense of $98,500 and the company paid out $154,000 in cash dividends during 2016. The firm's net capital spending for 2016 was $1,050,000, and the firm reduced its net working capital investment by $134,000.What was the firm's 2016 operating cash flow, or OCF? (A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

Answer: $633,500

Explanation:

Cash flow to creditors:

= Interest Paid - (2016, Long term debt - 2015, Long term debt)

= $98,500 - ($1,670,000 - $1,445,000)

= -($126,500)

Cash flow to stockholders:

= Dividend paid - [(2016 common stock account + 2016 additional paid in surplus) - (2015 common stock account + 2015 additional paid in surplus)]

= $154,000 - [($159,000 + $3,040,000) - ($149,000 + $2,740,000)]

= -($156,000)

Therefore,

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders            

                                     =  -($126,500) + (-$156,000)

                                     = -($282,500)

Hence,

Operating cash flow = Cash flow from assets + Capital spending + Change in working capital

                                  = -($282,500) + $1,050,000 + (-$134,000)

                                  = $633,500