Question

The following changes took place last year in Pavolik Company's balance sheet accounts: Asset and Contra-Asset Accounts Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Long-term investments Property, plant, and equipment Accumulated depreciation Liabilities and Stockholders' Equity Accounts $ 5D Accounts payable $ 35 1 $110 I Accrued liabilities $ 4D $ 70 D Income taxes payable $ 81 Bonds payable $150 1 $ 6D Common stock $ 80 D $185 I Retained earnings $ 54 1 $ 60 I D = Decrease; 1 = Increase. Long-term investments that cost the company $6 were sold during the year for $16 and land that cost $15 was sold for $9. In addition, the company declared and paid $30 in cash dividends during the year. Besides the sale of land, no other sales or retirements of plant and equipment took place during the year. Pavolik did not retire any bonds during the year or issue any new common stock. The company's income statement for the year follows: $ 700 400 300 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items : Loss on sale of land Gain on sale of investments Income before taxes Income taxes Net income

Answer 1

The statement of cash flow determines the changes in cash by calculating cash flow from operating, investing and financing activities.

indirect method:- operating activities section starts with net income and add back non cash expense and add/less changes in current assets and liabilities. Investing activities records changes in non current assets like purchase of equipment. cash flow from financing activities records changes in non current liabilities like long term notes and equity section of balance sheet.

operating cash flow

net income		$84
Adjustments
depreciation	$60
gain on sale of long term investments	($10)
loss on sale of land	$6
increase in account receivable	($110)
increase in prepaid expenses	($9)
decrease in inventory	$70
increase in accounts payable	$35
increase in income taxes payable	$8
decrease in accrued liabilities	($4)	$46
net cash by operating activities [84+60-10+6-110-9+70+35+8-4]		$130

statement of cashflow

operating activities
net cash flow generated from operating activities		$130
Investing activities
purchase of property, Plant & equipment	($200)
sale of long term investment	$16
proceeds from sale of Land	$9
Net cash used in investing activities [-185+6]		($175)
financing activities
repurchase of common stock	($80)
proceeds from bonds payable	$150
dividends paid	($30)
net cash used in financing activities [-80+150-30]		$40
net icnrease (decrease) in cash[130-175+40]		($5)
beginning cash balamce		$90
ending cash balance [90-5]		$85

explanation for purchase of plant property

=increase in plant property + carrying value of land sold

=$185+$15

=$200