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 Liabilities and Stockholders' Equity Accounts $ 5D Accounts payable $ 35 I $110 T Accrued liabilities $ 70 D Income taxes payable $ 9I Bonds payable $150 I $ 6 D Common stock $ 80D $185 I Retained earnings $ 60 1 D = Decrease: I = Increase. Long-term investments that cost the company $6 were sold during the year for $16 and land that cost $15 was sold for $9. In addition, the company declared and paid $30 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: $700 400 300 184 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 The company's beginning cash balance was $90 and its ending balance was $85. 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 actives Investing actites Financing activities Beginning cash and cash equivalents Ending cash and cash equivalents

Answer 1

Answer-a)-

PAVOLIK COMPANY
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		84
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		60
Loss on sale of land		6
Gain on sale of investments		-10
Change in operating assets & liabilities
Increase in accounts receivable		-110
Decrease in inventory		70
Increase in prepaid expenses		-9
Increase in accounts payable		35
Decrease in accrued liabilities		-4
Increase in income taxes payable		8
Net cash flow from operating activities		130

2)-

PAVOLIK COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities (a)		130

Cash Flow from Investing activities
Property,plant and equipment purchased		-200
Long term investment sold		16
Land sold		9
Net cash Flow from Investing activities (b)		-175
Cash Flow from Financing activities
Cash dividends paid		-30
Common stock purchased		-80
Bonds issued		150
Net cash Flow from Financing activities (c)		40
Net Change in cash c=a+b+c		-5
Beginning cash balance		90
Closing cash balance		85