Question

The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,280,000, and the December 31, 2014, balance sheet showed long-term debt of $1,410,000. The 2014 income statement showed an interest expense of $93,400. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What was the firm’s cash flow to creditors during 2014? (Negative amount should be indicated by a minus sign.)

Cash flow to creditors

$

Answer 1

On December 31, 2013 - long-term debt = $1,280,000

On December 31, 2014 - long-term debt = $1,410,000

Interest expense during 2014 = $93,400

New debt issued in 2014 = Long-term debt on December 31, 2014 - Long-term debt on December 31, 2013

New debt issued in 2014 = 1,410,000 - 1,280,000 = $130,000

We pay interest expense to creditors and will raise debt from creditors

So, net cash flow to creditors = Interest expense - new debt issued = 93400 - 130000 = -S36,600, where negative sign indicates that firm took net cash from creditors

Firm's net cash flow to creditors = -$36,600