Question

1. tatement of Cash Flows—Indirect Method

   The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

   		Dec. 31, 20Y2		Dec. 31, 20Y1
   Assets
   Cash		$203		$66
   Accounts receivable (net)		115		83
   Inventories		72		46
   Land		165		188
   Equipment		93		72
   Accumulated depreciation-equipment		(25)		(13)
   	Total Assets	$623		$442
   Liabilities and Stockholders' Equity
   Accounts payable (merchandise creditors)		$78		$66
   Dividends payable		12		-
   Common stock, $10 par		41		21
   Paid-in capital: Excess of issue price over par—common stock		96		52
   Retained earnings		396		303
   	Total liabilities and stockholders' equity	$623		$442

   The following additional information is taken from the records:

   1. Land was sold for $58.
   2. Equipment was acquired for cash.
   3. There were no disposals of equipment during the year.
   4. The common stock was issued for cash.
   5. There was a $134 credit to Retained Earnings for net income.
   6. There was a $41 debit to Retained Earnings for cash dividends declared.

   a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

   Olson-Jones Industries, Inc.
   Statement of Cash Flows
   For the Year Ended December 31, 20Y2
   Cash flows from operating activities:
   	$
   Adjustments to reconcile net income to net cash flow from operating activities:
   Changes in current operating assets and liabilities:
   Net cash flow from operating activities		$
   Cash flows from investing activities:
   	$
   Net cash flow provided by investing activities
   Cash flows from financing activities:
   	$
   Net cash flow provided by financing activities
   		$
   Cash at the beginning of the year
   Cash at the end of the year		$

   b. Was Olson-Jones’s net cash flow from operations more or less than net income?
   

   The source(s) of the difference are:

   1. Gain on the sale of land
   2. Purchase of equipment
   3. Sale of common stock
   4. Changes in current operating assets and liabilities
   5. Depreciation expense
   6. Dividends paid

Answer 1

Cash Flow Statement (Indirect Method)
Particulars	Amount	Amount
Net Income		$           134.00
Adjustments to reconcile net income to:
Net cash provided by operating activities
Gain on sale of Land (W.N.1)	$            (35.00)
Depreciation	$              12.00
Increase in Accounts Receivable	$            (32.00)
Increase in Inventory	$            (26.00)
Increase in Accounts Payable	$              12.00
Net Cash Generated		$            (69.00)
Net cash provided by operating activities	(A)	$              65.00
Cash Flows from Investing Activities
Sale of Land	$              58.00
Purchase of Equipment	$            (21.00)
Net cash provided by investing activities	(B)	$              37.00
Cash Flows from Financing Activities
Issue of Common Stock	$              64.00
Dividend Paid (W.N.2)	$            (29.00)
Net cash provided by Financing activities	(C')	$              35.00
Net increase/decrease in cash	(A+B+C')	$           137.00
Add:Opening cash balance		$              66.00
Closing cash balance		$           203.00

Land (W.N.1)
Beg. Bal.	$ 188.00	Sale	$   58.00
Gain on sale	$   35.00	End. Bal.	$ 165.00
	$ 223.00		$ 223.00

Dividends Payable(W.N.2)
Cash (paid)	$   29.00	Beg. Bal	$          -
End. Bal.	$   12.00	Dividend	$   41.00
	$   41.00		$   41.00

	Net Income					$ 134.00
	Net cash flow from operations					$   65.00
	Therefore, Net Income is more					$   69.00
	Difference in due to:
a)	Gain on sale of Land					$   35.00
e)	Depreciation Expense					$ (12.00)
d)	Changes in current operating assets and liabilities					$   46.00
						$   69.00