Question

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year			Last Year
Assets
Cash	$	11		$	23
Accounts receivable		510			330
Inventory		160			215
Prepaid expenses		5			3
Total current assets		686			571
Property, plant, and equipment		640			530
Less accumulated depreciation		95			80
Net property, plant, and equipment		545			450
Long-term investments		10			43
Total assets	$	1,241		$	1,064
Liabilities and Stockholders' Equity
Accounts payable	$	350		$	265
Accrued liabilities		45			60
Income taxes payable		80			73
Total current liabilities		475			398
Bonds payable		330			230
Total liabilities		805			628
Common stock		259			350
Retained earnings		177			86
Total stockholders’ equity		436			436
Total liabilities and stockholders' equity	$	1,241		$	1,064

Weaver Company Income Statement For This Year Ended December 31
Sales					$	830
Cost of goods sold						465
Gross margin						365
Selling and administrative expenses						217
Net operating income						148
Nonoperating items:
Gain on sale of investments	$	7
Loss on sale of equipment		(5	)			2
Income before taxes						150
Income taxes						45
Net income					$	105

During this year, Weaver sold some equipment for $14 that had cost $44 and on which there was accumulated depreciation of $25. In addition, the company sold long-term investments for $40 that had cost $33 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $91 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 $830 Adjustments to a cash basis: Increase in Accounts receivable $180 $650 [Increase in Accounts Receivable = $330 - $510 = $180] -$465 Cost of Goods Sold Adjustments to a cash basis: Decrease in Inventory Increase in Accounts payable $55 $85 [Decrease in Inventory = $215 - $160 = $55] [Increase in Accounts Payable = $350 - $265 = $85] $325 $217 Selling & Administrative Expenses Adjustments to a cash basis: Depreciation Expense included Increase in Prepaid expenses Decrease in Accrued liabilities $40 $2 [Dep. Expes. = $95 + $25 - $80 = $40] [Increase in Prepaid exps. = $3-$5 = -$2] [Decrease in Accrued Liab. = $45 - $60 = $15] $15 $194 $45 Income Taxes Adjustments to a cash basis: Increase in Income taxes payable Net Cash Flows from Operating Activities $38 [Increase in IT payable = $80 - $73 = $7] $93

$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 $325 Operating expenses $194 Income taxes $38 Total cash disbursements Net Cash flow from operating activities Cash flow from investing activities: Cash received from selling equipment $14 Cash received from selling investments $40 Cash paid to purchase new equipments $ 154 Net cash flow from investing activities $557 $93 [$640 + $44 - $530] $100

$100 $91 $14 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 = $330 - $230 = $100] [Decrease in Common Stock = $259 - $350 = $91] [Cash dividends paid =$86 + $105 - $177 = $14] $5 $12 ($93 - $100 + $5] $23 $11 (-$12 + $23]