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 $ 9 D Accounts payable $ 29 I Accounts receivable $ 13 I Accrued liabilities $ 13 D Inventory $ 36 D Income taxes payable $ 18 I Prepaid expenses $ 8 I Bonds payable $ 116 I Long-term investments $ 10 D Common stock $ 52 D Property, plant, and equipment $ 230 I Retained earnings $ 49 I Accumulated depreciation $ 49 I D = Decrease; I = Increase. Long-term investments that cost the company $10 were sold during the year for $24 and land that cost $23 was sold for $13. In addition, the company declared and paid $7 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 $ 690 Cost of goods sold 292 Gross margin 398 Selling and administrative expenses 310 Net operating income 88 Nonoperating items: Loss on sale of land $ (10 ) Gain on sale of investments 14 4 Income before taxes 92 Income taxes 36 Net income $ 56 The company’s beginning cash balance was $106 and its ending balance was $97. 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.

Answer 1

1	Net cash provided by operating activities:
							$	$
	Net income							56
	Adjustments:
	Depreciation		(increase in accumulated depreciation)				49
	Loss on sale of land						10
	Gain on sale of investments						-14
	Increase in accounts payable						29
	Increase in accounts receivable						-13
	Decrease in accrued liabilities						-13
	Decrease in inventory						36
	Increase in income taxes payable						18
	Increase in prepaid expenses						-8	94
	Net cash provided by operating activities							150
	Note:
	Increase in current assets results in cash outflow while the decrease results in cash inflow.
	Increase in current liabilities results in cash inflow while the decrease results in cash outflow.
2		Statement of cashflows
							$	$
	Net cash provided by operating activities					A		150
	Cashflow from financing activities:
	Cash dividend paid						-7
	Bonds issued (Increase in bonds payable)						116
	Commo stock repurchased (Decrease in common stock)						-52
	Net cash provided by financing activities					B		57
	Cashflow from investing activities:
	Long-term investments sold						24
	Sale of land						13
	Purchase of property,plant and equipment
	(Increase in PPE+Cost of land sold)				(230+23)		-253
	Net cash provided in investing activities					C		-216
	Decrease in cash					A+B+C		-9
	Add:beginning cash balance							106
	Ending cash balance							97
	I appreciate your ratings