Dogs 4 U Corporation has net cash flow from financing activities for the last year of $10 million. The company paid $8 million in dividends last year. During the year, the change in notes payable on the balance sheet was $9 million, and change in common and preferred stock was $0 million. The end of year balance for long-term debt was $44 million. Calculate the beginning of year balance for long-term debt.
A) $37 million
B) $34 million
C) $33 million
D) $35 million

Question

Quizplus · Accepted Answer

The beginning of year balance for long-term debt can be calculated by taking the end of year balance and subtracting the net change in debt. The net cash flow from financing activities ($10 million) includes dividends paid ($8 million), change in notes payable ($9 million), and no change in common and preferred stock ($0 million). To find the net change in long-term debt, we subtract the dividends paid from the net cash flow from financing activities: $10 million - $8 million = $2 million. This $2 million represents the net change in long-term debt. Therefore, the beginning of year balance for long-term debt is the end of year balance ($44 million) minus the net change in long-term debt ($2 million), which equals $42 million. However, since the options provided do not include $42 million and there seems to be a misunderstanding in the calculation process, let's correct the approach:The correct calculation should consider the net change in financing activities attributable to debt changes. Given the change in notes payable is $9 million (an increase in debt), and there's no change in stock, the entire change in long-term debt financing comes from these notes payable. Since dividends and stock issuances or repurchases do not affect the long-term debt directly but are part of the financing activities, we focus on the change in notes payable for the debt calculation.The end of year long-term debt is $44 million. To find the beginning balance, we need to account for the increase in debt due to the notes payable. Since there's an increase, we subtract this from the end of year balance to find the beginning balance: $44 million - $9 million = $35 million. This corrects the initial explanation and aligns with the choices provided.

Dogs 4 U Corporation Has Net Cash Flow from Financing