Question

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year			Last Year
Assets
Cash	$	16		$	22
Accounts receivable		490			320
Inventory		165			210
Prepaid expenses		10			8
Total current assets		681			560
Property, plant, and equipment		630			520
Less accumulated depreciation		120			70
Net property, plant, and equipment		510			450
Long-term investments		13			42
Total assets	$	1,204		$	1,052
Liabilities and Stockholders' Equity
Accounts payable	$	340		$	260
Accrued liabilities		40			50
Income taxes payable		79			72
Total current liabilities		459			382
Bonds payable		295			220
Total liabilities		754			602
Common stock		321			400
Retained earnings		129			50
Total stockholders’ equity		450			450
Total liabilities and stockholders' equity	$	1,204		$	1,052

Weaver Company Income Statement For This Year Ended December 31
Sales					$	820
Cost of goods sold						460
Gross margin						360
Selling and administrative expenses						233
Net operating income						127
Nonoperating items:
Gain on sale of investments	$	9
Loss on sale of equipment		(6	)			3
Income before taxes						130
Income taxes						39
Net income					$	91

During this year, Weaver sold some equipment for $13 that had cost $43 and on which there was accumulated depreciation of $24. In addition, the company sold long-term investments for $38 that had cost $29 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $79 of its own stock. This year Weaver did not retire any bonds.

Required:

1. Using the direct method, adjust the company’s income statement for this year to a cash basis.

2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year.

Answer 1

1)
Sales	$     820.00
Increase in accounts receivable	$   (170.00)	$     650.00
Cost of goods sold	$     460.00
Adjustments to a cash basis:
Decrease  in inventory	$     (45.00)
Increase in accounts payable	$     (80.00)	$     335.00
Selling and administrative expenses	$     233.00
Adjustments to a cash basis:
Increase in prepaid expenses	$         2.00
Decrease in accrued liabilities	$       10.00
Depreciation charges	$     (74.00)	$     171.00
Income taxes	$       39.00
Adjustments to a cash basis:
Increase in deferred income taxes	$       (7.00)	$       32.00
Net cash provided by operating activities		$     112.00
2)
Weavers Company
Statement of Cash Flows
For the Year Ended December 31
Operating activities:
Cash received from customers		$     650.00
Less cash disbursements for:
Cost of merchandise purchased	$     335.00
Selling and administrative expenses	$     171.00
Income taxes	$       32.00
Total cash disbursements		$     538.00
Net cash provided by operating activities		$     112.00
Investing activities:
Proceeds from sale of long-term investments	38
Proceeds from sale of equipment	13
Additions to plant and equipment	-103
Net cash used for investing activities		-52
Financing activities:
Increase in bonds payable	75
Decrease in common stock	-79
Cash dividends	-62
Net cash provided by financing activities		-66
Net decrease in cash		$       (6.00)
Cash balance, January 1		$       22.00
Cash balance, December 31		$       16.00