Question

Problem 13-7 Prepare a Statement of Cash Flows [LO13-1, LO13-2]

[The following information applies to the questions displayed below.]

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year			Last Year
Assets
Cash and cash equivalents	$	9		$	15
Accounts receivable		340			240
Inventory		125			175
Prepaid expenses		10			6
Total current assets		484			436
Property, plant, and equipment		610			470
Less accumulated depreciation		93			85
Net property, plant, and equipment		517			385
Long-term investments		16			19
Total assets	$	1,017		$	840
Liabilities and Stockholders' Equity
Accounts payable	$	310		$	230
Accrued liabilities		60			72
Income taxes payable		40			34
Total current liabilities		410			336
Bonds payable		290			180
Total liabilities		700			516
Common stock		210			250
Retained earnings		107			74
Total stockholders’ equity		317			324
Total liabilities and stockholders' equity	$	1,017		$	840

Weaver Company Income Statement For This Year Ended December 31
Sales					$	800
Cost of goods sold						500
Gross margin						300
Selling and administrative expenses						213
Net operating income						87
Nonoperating items:
Gain on sale of investments	$	7
Loss on sale of equipment		(4	)			3
Income before taxes						90
Income taxes						27
Net income					$	63

During this year, Weaver sold some equipment for $20 that had cost $40 and on which there was accumulated depreciation of $16. In addition, the company sold long-term investments for $10 that had cost $3 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $40 of its own stock. This year Weaver did not retire any bonds.

Problem 13-7 Part 1

Required:

1. Using the indirect method, determine the net cash provided by/used in operating activities for this year. (List any deduction in cash outflows as negative amounts.)

Weaver Company Statement of Cash Flows—Indirect Method (partial) Net income 63 24 Adjustments to convert net income to a cash basis: Depreciation Increase in accounts receivable Decrease in inventory Decrease in accrued liabilities (100) 50 (12) 6 Increase in income taxes payable o OOOOOOOOOOO Increase in prepaid expenses Gain on sale of investments Increase in accounts payable Loss on sale of equipment 80 4 0 Net cash provided by operating activities $ 104

Problem 13-7 Part 2

2. Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Weaver Company Statement of Cash Flows-Indirect Method(Partial) For the Year Ended December 31 Cash flows from(used for) operating activities Net Income 63 Adjustments to convert net income to a cash basis: Depreciation 24 $ - 100 Increase in ACcounts Receivable Decrease in Inventory 50 Decrease in Accrued Liabilities -12 Increase in Income taxes payable 6. Increase in prepaid expenses -4 Gain on sale of investments -7 Increase in accounts payable Loss on sale of equipment 80 4 Net cash provided by operating activities 104 %24

Weaver Company Statement of Cash Flows For the Year Ended December 31 Cash flows from(used for) operating activities $ 104 Net cash provided by operating activities Cash flows from investing activities Additions to property, plant and equipment Proceeds from sale of long-term investments Proceeds from sale of equipment Net cash used in investing activities -180 10 20 -150 Cash flows from financing activities Cash dividends paid -30 Repurchase of common stock Issue of Bonds Payable -40 2$ 110 Net cash used by financing activities 40 Net decrease in Cash and cash equivalents Beginning cash and cash equivalents -6 15 Ending cash and cash equivalents %24 %24

Workings: Additions to property, plant and equipment = Closing Balance - (Opening Balance - Cost of Equipment Sold) = 610 - (470-40) 180 Cash dividends paid = Retained Earnings Closing -Net Income - Retained Earnings Opening = 107 - 63 - 74 -30 Issue of Bonds Payable Closing Balance - Opening Balance = 290 - 180 110