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: 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 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: Sales $ 700 Cost of goods sold 400 Gross margin 300 Selling and administrative expenses 184 Net operating income 116 Nonoperating items: Loss on sale of land $ (6 ) Gain on sale of investments 10 4 Income before taxes 120 Income taxes 36 Net income $ 84 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.

Explanation / Answer

Cash flow from operating activities Net income 84 Adjustments to reconcile the net income Loss on sale of land 6 Depreciation expense 60 Profit on sale of investment -10 Changes in current asset and liabilities Increase in prepaid expense -9 Increase in accounts receivable -110 decrease in Inventory 70 Increase in accounts payable 35 Decrease in Accrued liabilities -4 Increase in income tax payable 8 46 Cash flow from operating activities 130 Cash flow from Investing activities Equipment purchased -200 Long term investment sold 16 Land sold 9 Cash flow from Investing activities -175 Cash flow from Financing activities Bonds payable 150 Common stock -80 Dividend paid -30 Cash flow from Financing activities 40 Net Cash and cash equivalent -5 Add Beginning cash and cash equivalent 90 Ending cash and cash equivalent 85

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