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:

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:

The company’s beginning cash balance was $90 and its ending balance was $85.

Required:

2. Prepare a statement of cash flows for the year.

Asset and Contra-Asset Accounts Liabilities and Stockholders' Equity Accounts Cash $ 5 D Accounts payable $ 35 I Accounts receivable $ 110 I Accrued liabilities $ 4 D Inventory $ 70 D Income taxes payable $ 8 I Prepaid expenses $ 9 I Bonds payable $ 150 I Long-term investments $ 6 D Common stock $ 80 D Property, plant, and equipment $ 185 I Retained earnings $ 54 I Accumulated depreciation $ 60 I

Explanation / Answer

Solution:

Statement of Cash Flows - Pavolik Company Particulars Details Amount Cash Flow from Operating Activities: Net Income $84.00 Adjustments to reconcile net income to cash flow from operating activities: Depreciation $60.00 loss on sale of land $6.00 Gain on sale of Investment -$10.00 Increase in Accounts Receivables -$110.00 Decrease in Inventory $70.00 Increase in Prepaid Expenses -$9.00 Increase in Accounts payable $35.00 Decrease in Accrued Liabilities -$4.00 Increase in Income Tax payable $8.00 Total Adjustments $46.00 Net Cash Flow From Operating Activites (A) $130.00 Cash Flow from Investing Activities: Sale of Land $9.00 Sale of Long term Investment $16.00 Increase in Property, Plant and Equipment ($185+$15) -$200.00 Net Cash Flow From Investing Activites (B) -$175.00 Cash Flow from Financing Activities: Dividend paid -$30.00 Bonds Issued $150.00 Decrease in common stock -$80.00 Net Cash Flow From Financing Activites (C) $40.00 Total Cash flow from all activities (A+B+C) -$5.00 Cash at the beginning of the year $90.00 Cash at the end of year $85.00

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