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	$	24	D	Accounts payable	$	74	I
Accounts receivable	$	28	I	Accrued liabilities	$	28	D
Inventory	$	66	D	Income taxes payable	$	33	I
Prepaid expenses	$	23	I	Bonds payable	$	236	I
Long-term investments	$	25	D	Common stock	$	112	D
Property, plant, and equipment	$	455	I	Retained earnings	$	94	I
Accumulated depreciation	$	94	I

D = Decrease; I = Increase.

Long-term investments that cost the company $25 were sold during the year for $54 and land that cost $53 was sold for $28. In addition, the company declared and paid $22 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					$	1,140
Cost of goods sold						502
Gross margin						638
Selling and administrative expenses						460
Net operating income						178
Nonoperating items:
Loss on sale of land	$	(25	)
Gain on sale of investments		29				4
Income before taxes						182
Income taxes						66
Net income					$	116

The company’s beginning cash balance was $136 and its ending balance was $112.

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

	Pavolik Company
Statement of cash flow (partial)
Net income for the year					116
Adjustments to reconcile net income to
net cash from operating activities
Depreciation expense				94
loss on sale of land				25
Gain on sale of investments				-29
increase in accounts receivable				-28
decrease in inventory				66
increase in prepaid expense				-23
increase in accounts payable				74
decrease in accrued liabilities				-28
increase in income taxes payable				33	184
net cash from operating activities					300
Required 2
operating activities
net cash from operating activities					300
investing activities:
cash from sale of investments				54
cash from sale of land				28
increase in property 'plant and equipment				-508
net cash used by investing activities					-426
Financing activities
cash from bonds payable				236
repurchase of common stock				-112
cash dividend				-22
net cash provided by financing activities					102
net decrease in cash					-24
cash at the beginning of the year					136
cash at year end					112