The following changes took place last year in Pavolik Company\'s balance sheet a

Question

The following changes took place last year in Pavolik Company's balance sheet accounts: Liabilities and stockholders' Equity Accounts Asset and Contra-Asset Accounts Cash Accounts receivable Inventory Prepaid expenses Long-term investments Property, plant, and equipment Accumulated depreciation 25 D Accounts payable 29I Accrued liabilities 68 D Income taxes payable 24I Bonds payable $ 26 D Common stock $470 I Retained earnings $ 97 I $ 77 I 29 D $ 34 I $244 I $116 D $ 97 I D = Decrease: I = Increase Long-term investments that cost the company $26 were sold during the year for $56 and land that cost $55 was sold for $29. In addition, the company declared and paid $23 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 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: $1,170 516 654 470 184 Loss on sale of land $(26) 30 Gain on sale of investments Income before taxes Income taxes Net income 188 68 $ 120 The company's beginning cash balance was $138 and its ending balance was $113.

Explanation / Answer

Solution:

Pavolik Company Statement of Cash Flows (Indirect Method) Particulars Details Amount Cash Flow from Operating Activities: Net Income $120.00 Adjustments to reconcile net income to net cash provided by operations: Depreciation Expense $97.00 Loss on sale of land $26.00 Gain on sale of investment -$30.00 Increase in accounts receivables -$29.00 Decrease in inventory $68.00 Increase in prepaid expenses -$24.00 Increase in accounts payable $77.00 Increase in income tax payable $34.00 Decrease in accrued liabilities -$29.00 Net Cash provided by operating activities $310.00 Cash Flow from Investing Activities: Sale of long term investment ($26 + $30) $56.00 Sale of Land $29.00 Purchase of equipment ($470 + $55) -$525.00 Net Cash Provided by Investing activities -$440.00 Cash Flow from Financing Activities: Proceed from issue of Bond $244.00 Repurchase of common stock -$116.00 Dividend paid -$23.00 Net Cash Provided by financing activities $105.00 Net Increase / (Decrease) in Cash -$25.00 Cash balance at beginning of year $138.00 Cash balance at end of year $113.00

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