Question

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 and cash equivalents	$	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.

Use the indirect method to determine the net cash provided by operating activities for the year. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Pavolik Company Statement of Cash Flows (partial) $ 0 Required 1 Required 2 >

Answer 1

Answer
Requirement- 1
Net income		$     104.00
Adjustment to reconcile net income to net cash flow from operating activities
Loss on sale of land	$        22.00
Gain on sale of investments	-$        26.00
Increase account payable	$        65.00
Increase account receivable	-$        25.00
Decrease inventory	$        60.00
Depreciation	$        85.00
Decrease accured liabiltiies	-$        25.00
Increase income tax payable	$        30.00
Increase prepaid expense	-$        20.00
		$     166.00
Net cash flow from operating activities		$     270.00

Requirement-2
Statement of cash flow
Net Cash flow from operating activities	$      270.00
Cash flow from investing activities
Sale of land	$        25.00
Sale of long term investment	$        48.00
Purchase property, plant and equipment	-$      457.00
Net cash flow from investing activities	-$      384.00
Cash flow from financing activities
Dividend paid	-$        19.00
Purchase treasury stock	-$      100.00
Issue Bonds	$      212.00
Net cash flow from financing activities	$        93.00
Net increase (decrease) in Cash	-$        21.00
Beginning cash	$      130.00
Ending Cash	$      109.00

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