Question

The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 2012 and 2041, is as follows: Dec. 31, 20Y2 Dec12 Dividends payable 32.00 13 Common stock, $1 par 105.00 45.00 14 Paid-in capital: Excess of issue price over par-common stoRequired: A. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

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Answer #1
Solution:
A)
Olson-Jones Industries Inc
Statement of Cash Flows for the year ended December 31, 20Y2
Cash Flows from operating activities:
Net income $    299.00
Adjustment to reconcile net income to net cash flow from operating activities:
Add:Depreciation ($60-$27) $      33.00
Less: Gain on sale of land $    (67.00)
Changes in Current operating assets and liabilities:
Increase in accounts receivable ($195-$280) $    (85.00)
Increase in Inventory ($110-$172) $    (62.00)
Increase in accounts payable ($180-$161) $      19.00
Net cash flow from operating activities $      137.00
Cash Flows from Investing Activities:
Cash Received from sale of land $    120.00
Less: Cash paid for purchase of equipment (172-223) $    (51.00)
Net cash from Investing Activities: $        69.00
Cash Flows from Financing Activities:
Cash Received from sale of common stock ($105-45) $      60.00
Paid in capital ($247-$121) $    126.00
Less:Cash paid for dividends $    (64.00)
Net Cash from Financing Activities: $      122.00
Increase in Cash $      328.00
Cash at the beginning of the year $      158.00
Cash at the end of the year $      486.00
Workings:
Calculation of gain/loss on sale of land
Opening bal land $    453.00
Closing bal land $ (400.00)
Book value of land $      53.00
Sale value of land $    120.00
Profit on sale of land ($120-$53) $      67.00
Dividends:
Dividends debited to retained earnings $      96.00
Less:Dividends payable $    (32.00)
Dividends paid $      64.00
B)
Net income $299
Net cash flow from operation ($137)
$162
Net income is higher than cash flow from operations
Source of this difference :
Add:Depreciation (Non cash expense , therefore added back $      33.00
Less: Gain on sale of land (Gain on sale is not a business activity, therefore added back) $    (67.00)
Changes in Current operating assets and liabilities:
Increase in accounts receivable (cash not received from accounts receivable, therefore increase is deducted) $    (85.00)
Increase in Inventory ($110-$172) (cash blocked in purchase of inventory) $    (62.00)
Increase in accounts payable ($180-$161) (Cash not paid to accounts payable) $      19.00
Source of this difference $ (162.00)
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