Question

he 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		$128		$41
Accounts receivable (net)		73		51
Inventories		46		28
Land		105		116
Equipment		59		45
Accumulated depreciation-equipment		(16)		(8)
	Total Assets	$395		$273
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$50		$41
Dividends payable		8		-
Common stock, $1 par		26		13
Paid-in capital: Excess of issue price over par—common stock		65		32
Retained earnings		246		187
	Total liabilities and stockholders' equity	$395		$273

The following additional information is taken from the records:

1. Land was sold for $28.
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 $85 credit to Retained Earnings for net income.
6. There was a $26 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:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow from investing activities
Cash flows from (used for) financing activities:
	$
Net cash flow from financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

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

Answer 1

OLSON-JONES INDUSTRIES INC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 20Y2
	Amount	Amount
Cash flows from operating activities:
Net Income	$          85
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$             8
Gain on Sale of Land	$         -17		$116 - $28 - $105
Changes in current operating assets and liabilities
Increase in accounts receivable	$         -22
Increase in inventories	$         -18
Increase in accounts payable	$             9
Net cash flow from operating activities		$          45
Cash flows from investing activities:
Cash received from sale of land	$          28
Cash paid for purchase of equipment	$         -14
Net cash flow from investing activities		$          14
Cash flows from financing activities:
Cash received from sale of common stock	$          46		$26 + $65 - $13 - $32
Cash paid for dividends	$         -18		$8 - $26
Net cash flow from financing activities		$          28
Change in cash		$          87
Cash at the beginning of the year		$          41
Cash at the end of the year		$        128

Olson-Jones Industries Inc.’s net income was more than the cash flows from operations because of

● $8 of depreciation expense, which has no effect on cash.

● A $17 gain on the sale of land. The proceeds from this sale of $28, which include the gain, are reported in the Investing activities section of the statement of cash flows.

● Changes in current operating assets and liabilities that are added or deducted, depending on their effect on cash flows:

Increase in accounts receivable, $22 deducted

Increase in inventories, $18 deducted

Increase in accounts payable, $9 added