Question

The following changes took place last year in Pavolik Company's balance sheet accounts: Asset and Contra-Asset Accounts Cash Accounts receivable Inventory Prepaid expenses Long-term investments Property, plant, and equipment Accusulated depreciation $ 18 D $ 22 I $ 54 D $ 17 1 $ 19 D $365 I Liabilities and Stockholders' Equity Accounts Accounts payable $ 56 I Accrued liabilities $ 22 D Income taxes payable $ 27 1 Bonds payable $188 I Common stock Retained earnings $ 76 T D Decrease; 1 = Increase Long-term investments that cost the company $19 were sold during the year for $42 and land that cost $41 was sold for $22. In addition, the company declared and paid $16 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: Sales $ 960 418 542 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Logs on sale of land Gain on sale of investments Income before taxes Income taxes Net income The company's beginning cash balance was $124 and its ending balance was $106. Required: 1. Use the indirect method to determine the net cash provided by operating activities for the year. 2. Prepare a statement of cash flows for the year. Pavolik Company Statement of Cash Flows (partial) Pavolik Company Statement of Cash Flows Operating activities Investing acties Financing activities Beginning cash and cash equivalents Ending cash and cash equivalents

Answer 1

Pravolik Company Statement of Cash Flows (Partial - Indirect Method) Cash Flow from Operating Activities: $92 Net Income Adjustments to reconcile net income to net cash provided by operating activities: $76 Depreciation Expense [Non-cash expense and so added back] $19 Loss on sale of land [Non-cash expense and so added back] -$23 Gain on sale of investments [Non-cash income and so deducted back] -$22 Increase in Receivables [Working capital is increased and so negative] $54 Decrease in Inventory [Working capital is decreased and so positive] Increase in Prepaid expenses -$17 [Working capital is increased and so negative] Increase in Accounts Payable $56 [Working capital is decreased and so positive] -$22 Decrease in Accrued Liabilities [Working capital is increased and so negative] Increase in Income taxes payable $27 $148 [Working capital is decreased and so positive] $240 Net Cash provided by operating activities

Pravolik Company Statement of Cash Flows Cash Flow from Operating Activities: Net Cash provided by operating activities $240 [As calculated above] Cash Flow from Investing Activities: $42 Cash realized from sale of investments $22 Cash realized from sale of land Cash used to purchase plant, property & equip [$365 $41 (Cost of land disposed off)] -$342 -$406 Net Cash used in investing activities Cash Flow from Financing Activities: Cash realized from new bonds payable $188 -$88 Cash used to redeem common stock Dividends declared & paid during the year -$16 $84 Net Cash provided by financing activities Net Decrease in cash balance during the year -$18 Add: Beginning cash balance Ending Cash Balance $124 $106