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 $ 17 D $ 21 1 $ 52 D $ 16 I $ 18 D $350 I $ 73 I Liabilities and Stockholders' Equity Accounts Accounts payable $ 53 I Accrued liabilities $ 21 D Income taxes payable $ 26 I Bonds payable $180 1 Common stock $ 84 D Retained earnings $ 731 D = Decrease; I = Increase. Long-term investments that cost the company $18 were sold during the year for $40 and land that cost $39 was sold for $21. In addition, the company declared and paid $15 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:

Answer 1

Requirement 1:

88 Pavolik Company Statement of Cash Flows - Indirect Method (Partial) Net income Adjustments to convert net income to a cash basis: Depreciation Gain on sale of long-term investments Loss on sale of land Increase in accounts receivable Decrease in inventory Increase in prepaid expenses Increase in accounts payable Decrease in accrued liabilities Increase in income taxes payable Net cash provided by operating activities 142 230 $

Requirement 2:

230 -389 Pavolik Company Statement of Cash Flows Operating activities: Net cash provided by operating activities Investing activities: Proceeds from sale of long-term investments Proceeds from sale of land Additions to property, plant and equipment Net cash used in invetsing activities Financing activities: Issuance of bonds payable Purchase of common stock Cash dividends Net cash provided by financing activities Net decrease in cash Beginning cash and cash equivalents Ending cash and cash equivalents -328 105

Additions to property, plant and equipment = Increase in property, plant and equipment + Cost of land sold
Additions to property, plant and equipment = $350 + $39
Additions to property, plant and equipment = $389