CashCow, Inc. Operating Cash Flow Calculation for 1998

Operating Cash Flow Calculation

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Question

The following financial data on CashCow, Inc. have been taken from its financial statements for 1996: a. Dividends paid$25,000 b. Sale of land$64,000 c. Inventory purchases$29,000 d. Purchase of a warehouse$208,000 e. Bonds issued$90,000 f. Dividends received from investments$17,000 g. Interest paid on bonds$2,400 h. Salaries paid$107,400 i. Cash collection from customers$28,400 j. Loss on land sale$18,000 k. Beginning cash balance$312,000

The operating cash flow for 1998 was ________.

Answers

Explanations

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A. B. C. D.

Explanation

Items c, f, g, h, i are operating events.

To calculate the operating cash flow for 1998, we need to determine the cash flows related to the company's operating activities. Operating cash flow is calculated using the direct method, which involves identifying cash inflows and outflows directly related to the company's core operations.

Given financial data:

  • Dividends paid: $25,000 (This represents an outflow of cash and is not related to operating activities.)
  • Sale of land: $64,000 (This represents an inflow of cash, but it is not an operating activity. It is classified as an investing activity.)
  • Inventory purchases: $29,000 (This represents an outflow of cash and is directly related to operating activities.)
  • Purchase of a warehouse: $208,000 (This represents an outflow of cash, but it is not an operating activity. It is classified as an investing activity.)
  • Bonds issued: $90,000 (This represents an inflow of cash, but it is not an operating activity. It is classified as a financing activity.)
  • Dividends received from investments: $17,000 (This represents an inflow of cash, but it is not an operating activity. It is classified as an investing activity.)
  • Interest paid on bonds: $2,400 (This represents an outflow of cash and is not related to operating activities.)
  • Salaries paid: $107,400 (This represents an outflow of cash and is directly related to operating activities.)
  • Cash collection from customers: $28,400 (This represents an inflow of cash and is directly related to operating activities.)
  • Loss on land sale: $18,000 (This represents an outflow of cash, but it is not an operating activity. It is classified as an investing activity.)
  • Beginning cash balance: $312,000

To calculate operating cash flow, we need to subtract the cash outflows (operating expenses) from the cash inflows (revenues). Let's calculate the total cash inflows and outflows related to operating activities:

Cash inflows from operating activities: Cash collection from customers: $28,400

Cash outflows from operating activities: Inventory purchases: $29,000 Salaries paid: $107,400

Total cash inflows: $28,400 Total cash outflows: $29,000 + $107,400 = $136,400

Finally, to calculate the operating cash flow, we subtract the total cash outflows from the total cash inflows:

Operating cash flow = Total cash inflows - Total cash outflows Operating cash flow = $28,400 - $136,400 Operating cash flow = -$108,000

Therefore, the operating cash flow for 1998 is -$108,000. None of the provided answer choices matches this result exactly. However, the closest option is C. -$111,400.

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