2013: A = 4,254k
2014: A = 4,764
change in assets: 510k
Sources of cash: increase in Liabilities, increase in Equity, decrease in Assets
Uses of cash: decrease in L, decrease in E, increase in A
Change in LTD: +200,000 a source of cash
Change in common stock: +10,000 a source of cash
Change in add'l paid-in surplus: +300,000 a source of cash
Total: $510,000 = change in assets ( a use of cash)
Subtract net capex = ($490k) < this means, of the $1m spent in net capex, $490k of it had to come from Ops, since the increase in debt and sale of equity did not produce enough cash to pay for it all. This is an assumption b/c you don't have the company's original cash position (or retained earnings), so we have to assume it's zero and that all cash outflows not paid by new debt or sale of equity, have to be paid from the cash generated by operations.
This also means that the dividends had to have been paid from net cash produced by operations.
so far: 490k + 149k = $639k
The decrease in NWC (a net asset) is also a source of cash - it contributed to the $639k.
[FYI - The interest EXPENSE is not necessarily equivalent to interest PAID, especially if the company acquired its debt by selling bonds at rates above or below the bonds' coupon rates - e.g. for bonds sold at a premium or a discount the interest expense will be different than interest PAID for cash flow purposes.]
CF Ops: $639,000
CF Investing ($1,000,000)
CF Financing 510,000 - divs 149,000 = $361,000
Assuming the Net Capex did not include a taxable gain or loss,
CF Ops = $639,000
Notice: (1,000k) + 361k + 639k = 0
It's assumed that the increase in Assets is attributable solely to the assets bought by the net CapEx.
The $1m net capex + 149k in dividends (ttl: 1,149k) is financed by:
new debt $200k + new equity 310k + CF ops 639k (ttl: 1,149k)
The 96k interest expense (assumed cash paid) and the cash produced by the reduction in Net Working Capital is already accounted for the the $639k.
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Unfortunately, I'm using a system called connect to do all class homework and when I input 639k as the answer, it tells me that it's incorrect... What might be wrong there?????
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,420,000, $144,000 in the common stock account and $2,690,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed long-term debt of $1,620,000, $154,000 in the common stock account and $2,990,000 in the additional paid-in surplus account. The 2014 income statement showed an interest expense of $96,000 and the company paid out $149,000 in cash dividends during 2014. The firm’s net capital spending for 2014 was $1,000,000, and the firm reduced its net working capital investment by $129,000.
