Question

Statement 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		$200		$66
Accounts receivable (net)		114		82
Inventories		72		45
Land		164		186
Equipment		92		72
Accumulated depreciation-equipment		(25)		(13)
	Total Assets	$617		$438
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$78		$66
Dividends payable		12		-
Common stock, $1 par		41		21
Paid-in capital: Excess of issue price over par—common stock		94		51
Retained earnings		392		300
	Total liabilities and stockholders' equity	$617		$438

The following additional information is taken from the records:

1. Land was sold for $55.
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 $133 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:
Net income	$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Gain on sale of land
Changes in current operating assets and liabilities:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
Cash from sale of land	$
Cash used for purchase of equipment
Net cash flow from investing activities
Cash flows from (used for) financing activities:
Cash from sale of common stock	$
Cash used for dividends
Net cash flow from financing activities
Increase in cash		$
Cash at the beginning of the year
Cash at the end of the year		$

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

Answer 1

a)

Olson-Jones Industries Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash Flows from Operating Activities
Net Income	$ 133.00
Adjustments to reconcile net income to Net cash flow from Operating Activities
Depreciation	$    12.00
Gain on Sale of Land	$ (33.00)
Changes in current operating assets and liabilities:
Increase in Accounts Receivable	$ (32.00)
Increase in Inventories	$ (27.00)
Increase in Accounts Payable	$    12.00
Net Cash flow from Operating Activities		$    65.00
Cash flows from (used for) investing activities:
Cash received from Sale of Land	$    55.00
Cash Paid for the Purchase of equipment	$ (20.00)
Net cash flow from Investing Activities	$    35.00
Cash flows from (used for) financing activities:
Issue common Stock	$    63.00
Dividends Paid	$ (29.00)
Net cash flow from Financing Activities		$    34.00
Increase in Cash		$ 134.00
Cash at the beginning of the year		$    66.00
Cash at the end of the Year		$ 200.00

b) Its Net Income was more than the Cash flows from Operations because Depreciation of $12 is a non cash expense, Gain on Sale of Land of $33 , proceeds of which are included in the Investing Activities. Change in Current Assets and Liabilities have made the differences also