Statement of Cash Flows—Indirect Method The comparative balance sheet of Olson-J

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

The following additional information is taken from the records:

Land was sold for $35.

Equipment was acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $77 credit to Retained Earnings for net income.

There was a $24 debit to Retained Earnings for cash dividends declared

a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

b. Was Olson-Jones Industries Inc.’s net cash flow from operations more or less than net income?

Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $116 $39 Accounts receivable (net) 67 49 Inventories 42 27 Land 95 109 Equipment 54 42 Accumulated depreciation-equipment (14) (7) Total Assets $360 $259 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $45 $39 Dividends payable 7 - Common stock, $1 par 24 12 Paid-in capital: Excess of issue price over par—common stock 53 30 Retained earnings 231 178 Total liabilities and stockholders' equity $360 $259

Explanation / Answer

Olson-Jones Industries Inc. Statement of Cash Flows For the Year Ended December 31, 20Y2 Cash flows from operating activities: Net income 77 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 7 Gain on sale of land -21 Changes in current operating assets and liabilities: Increase in Accounts receivable -18 Increase in Inventories -15 Increase in Accounts payable 6 Net cash flow from operating activities 36 Cash flows from (used for) investing activities: Sale of Land 35 Purchase of Equipment -12 Net cash flow from investing activities 23 Cash flows from (used for) financing activities: Proceeds from issuance of common stock 35 Dividends paid -17 Net cash flow from financing activities 18 Net change in cash 77 Cash at the beginning of the year 39 Cash at the end of the year 116

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