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 Accumulated depreciation § 36 D $ 40 I $ 90 D $ 35 I $ 37 D $635 I $130 I Liabilities and Stockholders' Equity Accounts Accounts payable $110 I Accrued liabilities $ 40 D Income taxes payable $ 45 I Bonds payable $ 332 I Common stock $160 D Retained earnings $ 130 I D = Decrease; 1 = Increase. Long-term investments that cost the company $37 were sold during the year for $78 and land that cost $77 was sold for $40. In addition, the company declared and paid $34 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: $1,500 670 830 580 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 $ (37 The company's beginning cash balance was $160 and its ending balance was $124. 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.

Answer 1

1)

Cash flow from operating activities
Net income		$         164
Non-cash adjustment
Add: Depreciation		$         130
Non-operating adjustments
Loss on sale of land	37
Gain on sale of Investments	-41
		$            (4)
Changes in current assets
Accounts receivable	-40
Inventory	90
Prepaid expesne	-35	$            15
Changes in current liabilities
Accounts payable	110
Accrued liabilities	-40
Income tax payable	45	$         115
Cash flow from operating activities		$         420

2) Statement of cash flows

Cash flow from operating activities
Net income		$         164
Non-cash adjustment
Add: Depreciation		$         130
Non-operating adjustments
Loss on sale of land	37
Gain on sale of Investments	-41
		$            (4)
Changes in current assets
Accounts receivable	-40
Inventory	90
Prepaid expesne	-35	$            15
Changes in current liabilities
Accounts payable	110
Accrued liabilities	-40
Income tax payable	45	$         115
Cash flow from operating activities		$         420
Cash flow from investing activities
Sale of investments		$            78
Sale of land		$            40
Purchase of Property,Plant & equipment (-635-77)		$       (712)
Cash flow from investing activities		$       (594)
Cash flow from financing activities
Dividend paid		$         (34)
Common stock repurchased		$       (160)
Bonds issued		$         332
Cash flow from financing activities		$         138
Net cash proceeds/(payments)		$         (36)
Add: Opening cash balance		$         160
Closing cash balance		$        124

Note:

Purchase of Property, Plant & equipment
Chane in Property, Plant & equipment	$        635
Add: Sale of land	$          77
	$        712

Change in accumulated depreciation of $130 depreciation expense for the period