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	$	35	D	Accounts payable	$	107	I
Accounts receivable	$	39	I	Accrued liabilities	$	39	D
Inventory	$	88	D	Income taxes payable	$	44	I
Prepaid expenses	$	34	I	Bonds payable	$	324	I
Long-term investments	$	36	D	Common stock	$	156	D
Property, plant, and equipment	$	620	I	Retained earnings	$	127	I
Accumulated depreciation	$	127	I

D = Decrease; I = Increase.

Long-term investments that cost the company $36 were sold during the year for $76 and land that cost $75 was sold for $39. In addition, the company declared and paid $33 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					$	1,470
Cost of goods sold						656
Gross margin						814
Selling and administrative expenses						570
Net operating income						244
Nonoperating items:
Loss on sale of land	$	(36	)
Gain on sale of investments		40				4
Income before taxes						248
Income taxes						88
Net income					$	160

The company’s beginning cash balance was $158 and its ending balance was $123.

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.

• Required 1
• Required 2

Use the indirect method to determine the net cash provided by operating activities for the year. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

	Pavolik Company Statement of Cash Flows (partial) 0 $0

Prepare a statement of cash flows for the year. (List any deduction in cash and cash outflows as negative amounts.)

	Pavolik Company Statement of Cash Flows Operating activities: Investing activities: 0 Financing activities: 0 0 Beginning cash and cash equivalents Ending cash and cash equivalents $0

Answer 1

S 160 127 Pavolik Company Statement of Cash flows (partial) Cash flows from Operating Activities: Net income Adjustments to reconcile Net Income to Net Cash Provided by Operating activities Depreciation expenses Gain on sale of investments Increase in accounts Receivables Decrease in Inventory Increase in Prepaid Expenses Increase in accounts Payable Decrease in accured liabilities Increase in Income taxes payable Net Cash flow from operating activities (40) (39) (34) 107 (39) 44 S S 214 374

374 S $ (620) 76 S (544) Pavolik Company Statement of Cash flows Operating activities Net Cash flow from operating activities Investing Activities Purchase of Equipment Sale of Long term investments Net Cash flow from Investing activities Financing Activities Issuance of Bonds payable Purchase of Treasury Stock Cash Dividends paid Net Cash flow from Financing activities Net Decrease in Cash Beginning cash and cash equivalents Ending cash and cash equivalents S 324 (156) (33) 135 (35) 158 123