Question

Exercise 13-4 Prepare a Statement of Cash Flows [LO13-1, LO13-2]

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 and cash equivalents	$	5	D	Accounts payable	$	35	I
Accounts receivable	$	110	I	Accrued liabilities	$	4	D
Inventory	$	70	D	Income taxes payable	$	8	I
Prepaid expenses	$	9	I	Bonds payable	$	150	I
Long-term investments	$	6	D	Common stock	$	80	D
Property, plant, and equipment	$	185	I	Retained earnings	$	54	I
Accumulated depreciation	$	60	I

D = Decrease; I = Increase.

Long-term investments that cost the company $6 were sold during the year for $16 and land that cost $15 was sold for $9. In addition, the company declared and paid $30 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					$	700
Cost of goods sold						400
Gross margin						300
Selling and administrative expenses						184
Net operating income						116
Nonoperating items:
Loss on sale of land	$	(6	)
Gain on sale of investments		10				4
Income before taxes						120
Income taxes						36
Net income					$	84

The company’s beginning cash balance was $90 and its ending balance was $85.

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