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The 2020 balance sheet of Osaka's Tennis Shop, Incorporated, showed long-term debt of $6.2 million

The 2020 balance sheet of Osaka's Tennis Shop, Incorporated, showed long-term debt of $6.2 million, and the 2021 balance sheet showed long-term debt of $6.6 million. The 2021 income statement showed an interest expense of $170,000. What was the firm's cash flow to creditors during 2021?

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Expert Solution

Long-term debt (2020) = $6.2 million

Long-term debt (2021) = $6.6 million

Interest expense (2021) = $170,000

 

Cash flow to creditors:

Increase in long term debt (LTD) means debt has been issued in 2021.

Issue of debt = LTD (2021) - LTD (2020)

                       = $6.6 million - $6.2 million 

                       = $400,000

 

Issue of debt is INFLOW OF CASH FROM CREDITORS.

Interest payment to creditors is an outflow of cash.

 

Net cash flows to creditors = Payment made to creditors - cash received from creditors on issue of debt

                                                    = 170,000 - 400,000 

                                                    = $ -230,000

Net cash flows to creditors is  $-230,000.

Junaid answered 3 years ago
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