Question

1. Use the indirect method to determine the net cash provided by operating activities for the year and p
The following changes took place last year in Pavolik Company's balance sheet accounts: Liabilities and Stockholders' Equity Accounts Accounts payable Asset and Contra-Asset Accounts $ 35 D $ 39 I $ 88 D $ 34 I $ 36 D $ 620 I $ 127 I Cash and cash equivalents S107 I $ 39 D $ 44 I $ 324 I Accounts receivable Accrued liabilities Inventory Income taxes payable Bonds payable Prepaid expenses Long-term investments Property, plant, and equipment Accumulated depreciation $156 D Common stock $ 127 I Retained earnings D = Decrease; I = Increase. Long-term investments that cost the company $36 were sold during the year for $76 and land that cost $75 was sold for $39. In addition, the company declared and paid $33 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: $1,470 Sales Cost of goods sold Gross margin Selling and administrative expenses 656 814 570 Net operating income Nonoperating items: Loss on sale of land 244 $ (36) Gain on sale of investments 40 4 Income before taxes 248 88 Income taxes $ 160 Net income
repare a statement of cash flows for the year.

Answer 1

Solution 1:

Pavolik Company
Computation of cash flow from operating activities
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$160.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense	$127.00
Loss on sale of land	$36.00
Gain on sale of investment	-$40.00
Increase in accounts receivables	-$39.00
Decrease in inventory	$88.00
Increase in prepaid expenses	-$34.00
Increase in accounts payable	$107.00
Decrease in accrued liabilities	-$39.00
Increase in Income tax payable	$44.00
Net Cash provided by operating activities		$410.00

Solution 2:

Pavolik Company
Statement of Cash Flows
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Cash provided by operating activities		$410.00
Cash Flow from Investing Activities:
Purhcase of property, Plant and Equipment ($620 + $75)	-$695.00
Proceed from sale of investment	$76.00
Proceed from sale of Land	$39.00
Net Cash Provided by Investing activities		-$580.00
Cash Flow from Financing Activities:
Proceed from issue of bond	$324.00
Retirement of common stock	-$156.00
Dividend Paid	-$33.00
Net Cash Provided by financing activities		$135.00
Net Increase / (Decrease) in Cash		-$35.00
Beginning cash and cash equivalents		$158.00
Ending cash and cash equivalents		$123.00