Question

The 2014 balance sheet of Sugarpova’s Tennis Shop, Inc., showed long-term debt of $5.4 million, and the 2015 balance sheet showed long-term debt of $5.8 million. The 2015 income statement showed an interest expense of $130,000.

What was the firm’s cash flow to creditors during 2015? (Negative amount should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

Solution:
	Cash flow to creditors during 2015           $	-270,000
Working Notes:
	Cash flow to creditors   = Interest Expense - Net New Borrowing
	= Interest Expense - ( long-term debt of 2015 - long-term debt of 2014)
	= $130,000 - ( $5.8 million - $5.4 million)
	= $130,000 - $0.4 million
	= $130,000 - 400,000
	=-$270,000
Notes:	Negative shows , its net cash flow from creditor to the firm.
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