Question

The following changes took place last year in Pavolik Company’s balance sheet accounts: Asset and Contra-Asset...

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 $ 21 D Accounts payable $ 65 I
Accounts receivable $ 25 I Accrued liabilities $ 25 D
Inventory $ 60 D Income taxes payable $ 30 I
Prepaid expenses $ 20 I Bonds payable $ 212 I
Long-term investments $ 22 D Common stock $ 100 D
Property, plant, and equipment $ 410 I Retained earnings $ 85 I
Accumulated depreciation $ 85 I

D = Decrease; I = Increase.

Long-term investments that cost the company $22 were sold during the year for $48 and land that cost $47 was sold for $25. In addition, the company declared and paid $19 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 $ 1,050
Cost of goods sold 460
Gross margin 590
Selling and administrative expenses 430
Net operating income 160
Nonoperating items:
Loss on sale of land $ (22 )
Gain on sale of investments 26 4
Income before taxes 164
Income taxes 60
Net income $ 104

The company’s beginning cash balance was $130 and its ending balance was $109.

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.

Business   Accounting   
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Answer #1

NET CASH FLOW FROM OPERATING ACTIVITY :

CASH RECEIVED FROM CUSTOMER (1050-25) 1025
LESS: CASH PAID FOR SUPPLIER (460-60-65) (335)
LESS: CASH PAID FOR EXPENSES (430-85+25+20) (390)
LESS: CASH PAID FOR INCOME TAX (60-30) (30)
NET CASH FLOW FROM OPERATING ACTIVITY 270

STATEMENT OF CASH FLOW :

CASH FLOW FROM OPERATING ACTIVITY 270
CASH FLOW FROM INVESTING ACTIVITY
SALE OF INVESTMENT 48
SALE OF LAND 25
PURCHASE OF PLANT & EQUIPMENT (410+47) (457)
NET CASH FLOW FROM INVESTING ACTIVITY (384)
FINANCING ACTIVITY
DIVIDEND PAID (19)
ISSUE OF BONDS 212
REPURCHASE OF STOCK (100)
NET CASH FLOW FROM FINANCING ACTIVITY 93
NET CASH FLOW (21)
BEGINNING CASH 130
ENDING CASH 109
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