Question

The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,470,000, $154,000 in the common stock account, and $2,790,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet showed long-term debt of $1,720,000, $164,000 in the common stock account and $3,090,000 in the additional paid-in surplus account. The 2019 income statement showed an interest expense of $101,000 and the company paid out $159,000 in cash dividends during 2019. The firm’s net capital spending for 2019 was $1,100,000, and the firm reduced its net working capital investment by $139,000.

What was the firm's 2019 operating cash flow, or OCF? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Answer 1

Answer:-

In this question we want to find out firm's 2019 operating cash flow.  

The formula for Operating Cash Flow (OCF) is given by:-

Operating Cash Flow (OCF) = Cash flow from asset + Net capital spending + Change in Net working capital

Step 1

First, we want to calculate the Cah flow from asset.

The formula for Cah flow from asset is given by:-

Cah flow from asset = Cash flow to creditors + Cash flow to stockholders

Cash flow to creditors = Interest paid - Ending Long term debt + Beginning Long term debt

= $101,000 - $1,720,000 +   $1,470,000

= - $149,000

Cash flow to stockholders = Dividends paid - Net new equity raised   

   = Divident paid - [ ( Common stock A/c ending + Additional paid-in surplus A/c ending) - ( Common stock A/c beginning + Additional paid-in surplus A/c beginning  ) ]      

= $159,000 - [ ($164,000 + $3,090,000) - ($154,000+ $2,790,000)]

= $159,000 - [ 3,254,000 - 2,944,000]

= $159,000 - $ 310,000

= - $151,000

Therefore, Cah flow from asset = - $149,000 + - $151,000

= - $ 3,00,000

Step 2

The net capital spending is given in the question

Net capital spending = $1,100,000

Step 3

The Change in Net working capital is given in the question

Change in net working capital = - $139,000

Hence, the firm's 2019 Operating cash flow ( OCF) = Cash flow from asset + Net capital spending + Change in Net working capital

= - $ 3,00,000 + $1,100,000 + - $139,000

= $ 661,000

Firm's 2019 Operating cash flow ( OCF) is $ 661,000