Question

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year			Last Year
Assets
Cash	$	13		$	29
Accounts receivable		650			400
Inventory		185			250
Prepaid expenses		6			4
Total current assets		854			683
Property, plant, and equipment		710			600
Less accumulated depreciation		100			90
Net property, plant, and equipment		610			510
Long-term investments		6			50
Total assets	$	1,470		$	1,243
Liabilities and Stockholders' Equity
Accounts payable	$	420		$	300
Accrued liabilities		70			80
Income taxes payable		87			80
Total current liabilities		577			460
Bonds payable		410			300
Total liabilities		987			760
Common stock		288			400
Retained earnings		195			83
Total stockholders’ equity		483			483
Total liabilities and stockholders' equity	$	1,470		$	1,243

Weaver Company Income Statement For This Year Ended December 31
Sales					$	900
Cost of goods sold						500
Gross margin						400
Selling and administrative expenses						203
Net operating income						197
Nonoperating items:
Gain on sale of investments	$	10
Loss on sale of equipment		(7	)			3
Income before taxes						200
Income taxes						60
Net income					$	140

During this year, Weaver sold some equipment for $12 that had cost $51 and on which there was accumulated depreciation of $32. In addition, the company sold long-term investments for $54 that had cost $44 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $112 of its own stock. This year Weaver did not retire any bonds.

Required:

1. Using the direct method, adjust the company’s income statement for this year to a cash basis.

2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year.

Answer 1

Weaver Company Direct Method of Determining the Net Cash Flows from Operating Activitites Sales $900 Adjustments to a cash basis: Increase in Accounts receivable $250 $650 [Increase in Accounts Receivable = $400 - $650 = $250] $500 Cost of Goods Sold Adjustments to a cash basis: Decrease in Inventory Increase in Accounts payable $65 [Decrease in Inventory = $250 - $185 = $65] [Increase in Accounts Payable = $420 - $300 = $120] $120 $315 -$203 Selling & Administrative Expenses Adjustments to a cash basis: Depreciation Expense included Increase in Prepaid expenses Decrease in Accrued liabilities $42 $2 [Dep. Expes. = $100 + $32 - $90 = $42] [Increase in Prepaid exps. = $4 - $6 = -$2] [Decrease in Accrued Liab. = $70 - $80 = $10] $10 $173 $60 Income Taxes Adjustments to a cash basis: Increase in Income taxes payable Net Cash Flows from Operating Activities $7 [Increase in IT payable = $87 - $80 = $7] $53 $109

$650 [Ref: Part-1] Weaver Company Statement of Cash Flows For This Year Ended December 31 Cash flow from operating activities: Cash received from customers Less Cash disbursements for: Inventory $315 Operating expenses $173 Income taxes $53 Total cash disbursements Net Cash flow from operating activities Cash flow from investing activities: Cash received from selling equipment $12 Cash received from selling investments $54 Cash paid to purchase new equipments $161 Net cash flow from investing activities $541 $109 [$710 + $51 - $600] $95

$110 $112 $28 Cash flow from financing activities: Cash received from issuing bonds Cash paid to repurchase common stock Cash dividends paid Net cash flow from financing activities Net decrease in cash balance during the year Cash balance at beginning of period Cash balance at end of period [Increase in Bonds payable = $410 - $300 = $110] [Decrease in Common Stock = $400 - $288 = $112] [Cash dividends paid =$61 + $154 - $201 = $14] $30 $16 ($109 - $95 +-$30] $29 $13 [-$16 + $29]