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 $202 $66
Accounts receivable (net) 115 83
Inventories 72 45
Land 164 187
Equipment 92 72
Accumulated depreciation-equipment (25) (13)
Total Assets $620 $440
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors) $78 $66
Dividends payable 12 -
Common stock, $10 par 41 21
Paid-in capital: Excess of issue price over par—common stock 95 51
Retained earnings 394 302
Total liabilities and stockholders' equity $620 $440

The following additional information is taken from the records:

Land was sold for $58.
Equipment was acquired for cash.
There were no disposals of equipment during the year.
The common stock was issued for cash.
There was a $133 credit to Retained Earnings for net income.
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 investing activities:
Cash received from sale of land $
Cash paid for purchase of equipment
Net cash flow provided by investing activities
Cash flows from financing activities:
Cash received from sale of common stock $
Cash paid for dividends
Net cash flow provided by financing activities
Change in cash $
Cash at the beginning of the year
Cash at the end of the year $

Feedback

Calculate the increases and decreases in the current asset/liability accounts over the period. What affect do these increases/decreases have on cash? What items might have had an affect on net income but have no cash impact? What items are considered noncurrent assets?

Learning Objective 2, Learning Objective 3, Learning Objective 4, and Learning Objective 5

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

The source(s) of the difference are:

Gain on the sale of land
Purchase of equipment
Sale of common stock
Changes in current operating assets and liabilities
Depreciation expense
Dividends paid

a, d, and e

Answer 1

Olson-jones industries Inc.
Statement of cash flow
For the year ended December 31, 20y2
Operating activity
Net income	133
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation (25-13)	12
Gain on sale of land	-35
Changes in current operating assets and liabilities:
Increase in accounts receivable (83-115)	-32
Increase in inventories (45-72)	-27
Increase in accounts payable (78-66)	12
Net cash flow from operating activities		63
Cash flows from investing activities:
Cash received from sale of land	58
Cash paid for purchase of equipment (72-92)	-20
Net cash flow provided by investing activities		38
Cash flows from financing activities:
Cash received from sale of common stock ((41+95)-(21+51)) with excess of issue price over par	64
Cash paid for dividends (dividend declared 41 on which dividend 12 is still unpaid. It means company paid dividend =41-12=29	-29
Net cash flow provided by financing activities		35
Change in cash		136
Cash at the beginning of the year		66
Cash at the end of the year		202

Original cost of land sold (187-164)	23
Less: sales of land	58
Loss (gain)on sale of land	-35

Increase in accounts receivable (83-115)	-32
Increase in inventories (45-72)	-27
Increase in accounts payable (78-66)	12
Net increase in current assets and liability. Company required deducting this value to net income. Because of additional investment in working capital required this year	-47