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The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,450,000, $150,000 in the common stock account, and $2,750,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet showed long-term debt of $1,680,000, $160,000 in the common stock account and $3,050,000 in the additional paid-in surplus account. The 2019 income statement showed an interest expense of $99,000 and the company paid out $155,000 in cash dividends during 2019. The firm’s net capital spending for 2019 was $1,060,000, and the firm reduced its net working capital investment by $135,000. What was the firm's 2019 operating cash flow, or OCF

Respuesta :

Answer:

Operating Cash Flows = $639,000

Explanation:

Provided information, we have

Cash flow from assets = Operating cash flow - Change in Net working capital - Net capital investment

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

Cash flow to creditors = Interest expense paid - Net increase in long term debt

= $99,000 - ($1,680,000 - $1,450,000) = $99,000 - $230,000 = - $131,000

Cash paid to Stockholder's = Net dividend paid to equity - Net increase in equity

= $155,000 - ($3,050,000 + $160,000 - $2,750,000 - $150,000)

= $155,000 - ($310,000)

= - $155,000

Therefore, cash flow from assets = - $131,000 + (- $155,000) = - $286,000

Putting values in the first equation we have,

- $286,000 = Operating cash flow - (- $135,000) -  $1,060,000

$1,060,000 - $286,000 = Operating Cash Flow + $135,000

$774,000 - $135,000 = Operating Cash Flows

$639,000 = Operating Cash Flows

Tundexi

The firm's operating cash flow in 2019 is $639,000.

Here, we are to determine the operating cash flow (OCF) for Whelan, Inc. from the Information provided in the question

Cash flow to creditors = Interest expense paid - Net increase in long term debt

Cash flow to creditors = $99,000 - ($1,680,000 - $1,450,000)

Cash flow to creditors = $99,000 - $230,000

Cash flow to creditors = - $131,000

Cash paid to Stockholder's = Net dividend paid to equity - Net increase in equity

Cash paid to Stockholder's = $155,000 - ($3,050,000 + $160,000 - $2,750,000 - $150,000)

Cash paid to Stockholder's = $155,000 - ($310,000)

Cash paid to Stockholder's = - $155,000

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

Cash flow from assets = - $131,000 + (- $155,000)

Cash flow from assets = - $286,000

  • From the Standard formula of Cash flow from assets which equals Operating cash flow - Change in Net working capital - Net capital investment

-$286,000 = Operating cash flow -(-$135,000) - $1,060,000

$1,060,000 - $286,000  - $135,000 = Operating Cash Flow

Operating Cash Flows = $639,000.

Therefore, the firm's operating cash flow in 2019 is $639,000.

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