Graffiti Advertising, Inc., reported the following financial statements for the last two years.

Graffiti Advertising, Inc., reported the following financial statements for the last two years. (Enter your answer as directed, but do not round intermediate calculations.)

2014 Income Statement
Sales	$	567,200
Costs of goods sold		274,005
Selling & administrative		124,729
Depreciation		54,572
EBIT	$	113,894
Interest		19,384
EBT	$	94,510
Taxes		37,804
Net income	$	56,706
Dividends	$	10,000
Addition to retained earnings	$	46,706

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2013
Cash	$	13,360	Accounts payable	$	9,500
Accounts receivable		18,990	Notes payable		14,504
Inventory		13,798
			Current liabilities	$	24,004
Current assets	$	46,148	Long-term debt	$	136,480
Net fixed assets	$	344,546	Owner's equity	$	230,210
Total assets	$	390,694	Total liabilities and owners’ equity	$	390,694

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2014
Cash	$	14,346	Accounts payable	$	10,516
Accounts receivable		21,095	Notes payable		16,470
Inventory		22,758
			Current liabilities	$	26,986
Current assets	$	58,199	Long-term debt	$	152,400
Net fixed assets	$	406,307	Owner's equity	$	285,120
Total assets	$	464,506	Total liabilities and owners’ equity	$	464,506

Requirement 1:

Calculate the operating cash flow.

Operating cash flow

$

Requirement 2:

Calculate the change in net working capital.

Change in net working capital

$

Requirement 3:

Calculate the net capital spending.

Net capital spending

$

Requirement 4:

Calculate the cash flow from assets. (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign.)

Cash flow from assets

$

Requirement 5:

Calculate the cash flow to creditors.

Cash flow to creditors

$

Requirement 6:

Calculate the cash flow to stockholders. (Negative amount should be indicated by a minus sign.)

Cash flow to stockholders

$

Explanation: 1:

OCF = EBIT + Depreciation – Taxes

OCF = $113,894 + 54,572 – 37,804

OCF = $130,662

2:

Next, we will calculate the change in net working capital which is:

Change in NWC = NWCend – NWCbeg

Change in NWC = (CAend – CLend) – (CAbeg – CLbeg)

Change in NWC = ($58,199 – 26,986) – ($46,148 – 24,004)

Change in NWC = $9,069

3:

Now, we can calculate the capital spending. The capital spending is:

Net capital spending = NFAend – NFAbeg + Depreciation

Net capital spending = $406,307 – 344,546 + 54,572

Net capital spending = $116,333

4:

Now, we have the cash flow from assets, which is:

Cash flow from assets = OCF – Change in NWC – Net capital spending

Cash flow from assets = $130,662 – 9,069 – 116,333

Cash flow from assets = $5,260

The company spent $5,260 on its assets. The cash flow from operations was $130,662, and the company spent $9,069 on net working capital and $116,333 on fixed assets.

5:

The cash flow to creditors is:

Cash flow to creditors = Interest paid – New long-term debt

Cash flow to creditors = Interest paid – (Long-term debtend – Long-term debtbeg)

Cash flow to creditors = $19,384 – ($152,400 – 136,480)

Cash flow to creditors = $3,464

The cash flow to stockholders is a little trickier in this problem. First, we need to calculate the new equity sold. The equity balance increased during the year. The only way to increase the equity balance is to add to retained earnings or sell equity. To calculate the new equity sold, we can use the following equation:

New equity = Ending equity – Beginning equity – Addition to retained earnings

New equity = $285,120 – 230,210 – 46,706

New equity = $8,204

What happened was the equity account increased by $54,910. Of this increase, $46,706 came from addition to retained earnings, so the remainder must have been the sale of new equity. Now we can calculate the cash flow to stockholders as:

6:

Cash flow to stockholders = Dividends paid – Net new equity

Cash flow to stockholders = $10,000 – 8,204

Cash flow to stockholders = $1,796

The company paid $3,464 to creditors and raised $1,796 from stockholders.

Finally, the cash flow identity is:

Cash flow from assets	=	Cash flow to creditors	+	Cash flow to stockholders
$5,260	=	$3,464	+	$1,796

The cash flow identity balances, which is what we expect.