Question

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,455,000, and the December 31, 2016, balance sheet showed long-term debt of $1,690,000. The 2016 income statement showed an interest expense of $99,500. What was the firm's cash flow to creditors during 2016? (A negative answer should be indicated by a minus sign.

Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Cash flow to creditors=

Answer 1

Solution :

Cash flow to creditors is the total amount of cash outflow during a given period that can be attributed as having been paid to the creditors or debt holders of a company.

Cash flow to creditors is calculated as follows:

= Opening balance of Long Term debt - Closing balance of Long Term debt + Interest expenses incurred during the year

In the given question

Opening balance of Long term debt = Balance as on 31.12.2015 = $ 1,455,000

Closing balance of Long term debt = Balance as on 31.12.2016 = $ 1,690,000

Interest expense incurred during the year = $ 99,500

Thus applying the above values in the formula given we have Cash flow to creditors :

= $ 1,455,000 - $ 1,690,000 + $ 99,500

= - $ 135,500

Thus the cash flow to creditors of Schism Inc., during 2016 is - $ 135,500.