Ask Question
11 February, 13:30

Fairbanks Co.'s balance sheet showed long-term debt of $4.75 million in 2016, and $3.5 million in 2017. In 2016, the balance sheet showed a common stock account of $1.5 million, and 5 million in additional paid-in surplus account. In 2017, the balance sheet showed $1.75 million and 5 million in the same two accounts respectively. In 2017, the income statement showed an interest expense of $750,000 and dividends paid of $900,000. Calculate the cash flow to the stockholders for the year.

+3
Answers (1)
  1. 11 February, 13:34
    0
    Firm's 2019 operating cash flow, or OCF

    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]

    = $165,000 - [$5,250,000 - $5,000,000]

    = $165,000 - $250,000

    = - $85,000

    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)

    = $410,000 - [ ($550,000 + $4,800,000) - ($510,000 + $4,6000,000) ]

    = $410,000 - [$5,350,000 - $5,110,000]

    = $410,000 - $240,000

    = $170,000

    Cash Flow from assets

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

    = - $85,000 + $170,000

    = $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 - (-$69,000) - $1,370,000

    Operating cash flow = $85,000 - $69,000 + $13,70,000

    Operating cash flow = $1,386,000

    "Therefore, the firm's 2019 operating cash flow, or OCF will be $1,386,000"
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Fairbanks Co.'s balance sheet showed long-term debt of $4.75 million in 2016, and $3.5 million in 2017. In 2016, the balance sheet showed a ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers