At the beginning of the year,long-term debt of a firm is $270 and total debt is $340.At the end of the year,long-term debt is $290 and total debt is $390.The interest paid is $40.What is the amount of the cash flow to creditors?

Question

Quizplus · Accepted Answer

Total debt = Long-term debt + Short-term debt
Initial short-term debt = $340 - $270 = $70
Final short-term debt = $390 - $290 = $100

Change in short-term debt = $100 - $70 = $30
Change in long-term debt = $290 - $270 = $20

Cash flow to creditors = interest paid - net increase in long-term debt
Cash flow to creditors = $40 - $20 = $20

Therefore, the answer is (C). $20.

At the Beginning of the Year,long-Term Debt of a Firm