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Nice question and solutions. Agree with the solutions.
I am just not sure where “delinquent interest payment” should appear in financial statement. Do not remember reading this.
Is it part of current portion of liability which is already counted in working capital change?
 
disptra Wrote:
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> Nice question and solutions. Agree with the
> solutions.
> I am just not sure where “delinquent interest
> payment” should appear in financial statement. Do
> not remember reading this.
> Is it part of current portion of liability which
> is already counted in working capital change?
–are you asking where to find it on the financial statements or how did we come up with that amount from the question?
I think cpk123 is right, whatever amount you still owe will be added to interest payable
 
just to clarify – interest expense and payable would not be under Working capital at all.
Working capital = CA - CL.
This is an FYI.
Increase in WC === means Net (CA - CL) has gone up. So must be deducted from CFO.
Decrease in WC === means Net (CA - CL) has gone down, added to CFO.
 
I have 2 questions on the Judy Picoo problem:
1) To calculate CFO, why is the $200,000 increase in net working capital subtracted?
2) How did you know that the starting cash for 2004 was $1,000,000?
Thanks so much.
 
i agree with you cpk123 interest that was recorded as expense but not paid when it was due. so i guess there is a slight difference than interest payable because interest payable might not be due yet
 
Sorry, about that–now I see that the cash at end of 2003 was given. But I still do not understand why increase in working capital needs to be subtracted to get CFO.
 
the one million is given in the problem
increase in working capital means that there is an increase in current assets or decrease in current liabilities.decrease of liabilities would mean an outflow reducing the cash flow, and just the same an increase in current assets would probably mean increase in inventories, acc receivable etc which means a decrease of cash flow
am I wrong?
 
i remember the CA and CL part as
CA – reduce – means source of cash.
increase — means use of cash
This is opposite sign usage.
CL – increase – source of cash
— reduce – use of cash
This is same sign usage.
and WC = net (CA - CL) so if positive - means CA > CL
if -ve – CA < CL
Hope this helps.
 
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