Question

The 2018 balance sheet of Speith’s Golf Shop, Inc., showed long-term debt of $5.4 million, and the 2019 balance sheet showed long-term debt of $5.65 million. The 2019 income statement showed an interest expense of $175,000. The 2018 balance sheet showed $530,000 in the common stock account and $2.3 million in the additional paid-in surplus account. The 2019 balance sheet showed $570,000 and $2.5 million in the same two accounts, respectively. The company paid out $400,000 in cash dividends during 2019. Suppose you also know that the firm’s net capital spending for 2019 was $1,390,000, and that the firm reduced its net working capital investment by $73,000.

What was the firm’s 2019 operating cash flow, or OCF? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

operating cash flow, or OCF?

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Ritter Corporation’s accountants prepared the following financial statements for year-end 2019: (Do not round intermediate calculations.)

  

RITTER CORPORATION
Income Statement
2019
Revenue	$	910
Expenses		645
Depreciation		106
Net income	$	159
Dividends	$	139

   

RITTER CORPORATION
Balance Sheets
December 31
		2018			2019
Assets
Cash	$	71		$	97
Other current assets		181			202
Net fixed assets		386			406
Total assets	$	638		$	705
Liabilities and Equity
Accounts payable	$	131		$	157
Long-term debt		156			177
Stockholders’ equity		351			371
Total liabilities and equity	$	638		$	705

         

a.	What is the change in cash during 2019?

b.	Determine the change in net working capital in 2019.

c.	Determine the cash flow generated by the firm’s assets during 2019.

   

this two questions i need them to be solved

Answer 1

Cash Flow to Creditors

Cash Flow to Creditors = Interest Expenses Paid – Net Increase in Long term debt

= Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]

= $175,000 – [$5,650,000 - $5,400,000]

= $175,000 - $250,000

= -$75,000

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid – Net New Equity

= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

= $400,000 – [($570,000 + $2,500,000) – ($530,000 + $2,300,000)]

= $400,000 – [$3,070,000 - $2,830,000]

= $400,000 - $240,000

= $160,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$75,000 + $160,000

= $85,000

Operating Cash Flow  

Operating Cash Flow using the Cash Flow from assets Equation

We know, Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending

$85,000 = Operating cash flow – (-$73,000) - $1,390,000

Operating cash flow = $85,000 - $73,000 - $1,390,000

Operating cash flow = $1,402,000

“Therefore, the firm's 2019 operating cash flow, or OCF will be $1,402,000”

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