The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $6.2 million, and the 2015 balance sheet showed long-term debt of $6.45 million. The 2015 income statement showed an interest expense of $215,000. The 2014 balance sheet showed $610,000 in the common stock account and $2.5 million in the additional paid-in surplus account. The 2015 balance sheet showed $650,000 and $3 million in the same two accounts, respectively. The company paid out $610,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,470,000, and that the firm reduced its net working capital investment by $89,000. What was the firm’s 2015 operating cash flow, or OCF? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e. g., 1,234,567.)

$1,416,000

Explanation:

The computation of the operating cash flow is shown below:

But before that following calculations need to be done

Cash flow to creditors is

= Interest paid - Net new borrowing

= $215,000 - (LTD at end - LTD at beg)

= $215,000 - ($6,450,000 - 6,200,000)

= $215,000 - 250,000

–$35,000

Cash flow to stockholders = Dividends paid - Net new equity

Cash flow to stockholders = $610,000 – [(Common end + APIS end) - (Common beg + APIS beg)]

= $610,000 - [($650,000 + 3,000,000) - ($610,000 + 2,500,000)]

= $610,000 - ($3,650,000 - 3,110,000)

= $70,000

Here APIS denotes  the additional paid-in surplus.

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

= -$35,000 + 70,000

= $35,000

Cash flow from assets = OCF - Change in NWC - Net capital spending

$35,000 = OCF - (-$89,000) - 1,470,000

= $35,000 - 89,000 + 1,470,000

= $1,416,000

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