Question

omparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year			Last Year
Assets
Cash and cash equivalents	$	19		$	24
Accounts receivable		530			340
Inventory		155			220
Prepaid expenses		6			4
Total current assets		710			588
Property, plant, and equipment		650			540
Less accumulated depreciation		100			90
Net property, plant, and equipment		550			450
Long-term investments		9			44
Total assets	$	1,269		$	1,082
Liabilities and Stockholders' Equity
Accounts payable	$	360		$	270
Accrued liabilities		60			70
Income taxes payable		81			74
Total current liabilities		501			414
Bonds payable		340			240
Total liabilities		841			654
Common stock		254			350
Retained earnings		174			78
Total stockholders’ equity		428			428
Total liabilities and stockholders' equity	$	1,269		$	1,082

Weaver Company Income Statement For This Year Ended December 31
Sales					$	840
Cost of goods sold						470
Gross margin						370
Selling and administrative expenses						213
Net operating income						157
Nonoperating items:
Gain on sale of investments	$	7
Loss on sale of equipment		(4	)			3
Income before taxes						160
Income taxes						48
Net income					$	112

During this year, Weaver sold some equipment for $15 that had cost $45 and on which there was accumulated depreciation of $26. In addition, the company sold long-term investments for $42 that had cost $35 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $96 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.

Weaver Company
Direct Method of Determining the Net Cash flows from Operating activities
Sales	840
Adjustments to a cash basis:
Increase in accounts receivable	-190
Cash received from customers		650
Cost of goods sold	470
Adjustments to a cash basis:
Decrease in inventory	-65
Increase in accounts payable	-90
Cash disbursements for inventory purchases		315
Selling and administrative expenses	213
Adjustments to a cash basis:
Depreciation expense [$100 - ($90 - $26)]	-36
Increase in prepaid expenses	2
Decrease in accrued liabilities	10
Cash disbursements for selling and administrative expenses		189
Income taxes	48
Adjustments to a cash basis:
Increase in income taxes payable	-7
Cash disbursements for income taxes		41
Net cash provided by operating activities		105

2.

Weaver Company
Statement of Cash Flows
For This Year Ended December 31
Operating activities:
Cash received from customers	650
Less cash disbursements for:
Inventory purchases	-315
Selling and administrative expenses	-189
Income taxes	-41
Total cash disbursements	-545
Net cash provided by operating activities		105
Investing activities:
Sale proceeds from equipment	15
Sale proceeds from long-term investments	42
Purchase of equipment [$650 - ($540 - $45)]	-155
Net cash used for investing activities		-98
Financing activities:
Issuance of bonds payable	100
Repurchase of own stock	-96
Payment of cash dividends ($78 + $112 - $174)	-16
Net cash used for financing activities		-12
Net decrease in cash		-5
Beginning cash and cash equivalents		24
Ending cash and cash equivalents		19