The following changes took place last year in Pavolik Company’s balance sheet ac

Question

The following changes took place last year in Pavolik Company’s balance sheet accounts

     Long-term investments that had cost the company $29 were sold during the year for $45, and land that had cost $30 was sold for $75. In addition, the company declared and paid $32 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.

Use the direct method to convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

PLEASE NOTE THIS IS THE DIRECT METHOD.

Asset and Contra-Asset Accounts Liabilities and Equity Accounts   Cash $ 76    I Accounts payable $ 20 I   Accounts receivable $ 15    I Accrued liabilities $ 8 D   Inventory $ 27    D Income taxes payable $ 12 I   Prepaid expenses $ 5    I Bonds payable $ 19 I   Long-term investments $ 29    D Common stock $ 44 D   Property, plant, and equipment $ 145    I Retained earnings $ 77 I   Accumulated depreciation $ 43    I

Explanation / Answer

Cash Inflows from Operating Activities Customer Description Adjustments Net Sales Sales as per Income Statement 602 Accounts Receivable Increased in balance sheet -15 Inventory Decrease in Inventory 27 Actual Cash Received from Customers 614 Cash Outflows from Operating Activities Purchases Description Adjustments Cost of Good Sold As per Income statement -248 Account Payable Increase in balance sheet 20 Actual Cash Outflows to Suppliers -228 Other Expenses Description Adjustments Income Tax Expense Income Tax Expense in Income statement -29 Selling and administrative expenses As per Income statement -277 Income Tax Payable Increase in Balance sheet 12 Accrued liabilities Decrease in balance sheet -8 Prepaid expenses Increase in Balance sheet -5 Actual Cash Outflows for other expenses -307 Net Cash Flow from operating activities =Cash Inflow from operating activities – Cash outflow from operating activities Net Cash Flow from operating activities 79 (614-228-307) Cash Inflows from Investing Activities: Investing Accounts Description Adjustments Long term investments Long term investments sold out 29 Gain on sale of long term investments Gain in income statement 16 sale of Land Land sold out 30 Gain on Sale of land Gain in income statement 45 Purchase of plant Increase in Balance sheet -145 Actual Cash Inflows from Investing Accounts -25 Cash Inflows from Financing Activities: Financing Accounts Description Adjustments Bonds payable Increase in balance sheet 19 Common stock Decrease in balance sheet -44 Dividends paid As per adjustment -32 Net cash flow from Financing Activities -57

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