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	$	8	D	Accounts payable	$	26	I
Accounts receivable	$	12	I	Accrued liabilities	$	12	D
Inventory	$	34	D	Income taxes payable	$	17	I
Prepaid expenses	$	7	I	Bonds payable	$	108	I
Long-term investments	$	9	D	Common stock	$	48	D
Property, plant, and equipment	$	215	I	Retained earnings	$	46	I
Accumulated depreciation	$	46	I

D = Decrease; I = Increase.

Long-term investments that cost the company $9 were sold during the year for $22 and land that cost $21 was sold for $12. In addition, the company declared and paid $6 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					$	660
Cost of goods sold						278
Gross margin						382
Selling and administrative expenses						300
Net operating income						82
Nonoperating items:
Loss on sale of land	$	(9	)
Gain on sale of investments		13				4
Income before taxes						86
Income taxes						34
Net income					$	52

The company’s beginning cash balance was $104 and its ending balance was $96.

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

statement of cash flow

Cash flows from operating activities
Net income		52
less income tax paid		(17)
Depreciation and amortization	46
loss on sale of land	9
Gain on sale of investment	(13)	42
increase in prepaid expenses	(7)
Increase in accounts receivables	(12)
Decrease in inventories	34
increase in accounts payables	26
decrease in accrued liability	(12)
increase in tax payable	17	46
cash generated from operating activities		128
Cash flows from investing activities
Purchase of property, plant, and equipment	(236)
Proceeds from sale of land	12
sale of long term investment	22
cash generated from investing activities		(202)
Cash flows from financing activities
redemption of common stock	(48)
Proceeds from issuance of long-term debt	108
Dividends paid	6
cash generated from financing activities		66
Net increase/decrease in cash and cash equivalents		(8)
Cash and cash equivalents at beginning of period		104
Cash and cash equivalents at end of period		96