Question

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year				Last Year
Assets
Cash and cash equivalents	$	18			$	11
Accounts receivable		294				230
Inventory		157				194
Prepaid expenses		9				5
Total current assets		478				440
Property, plant, and equipment		511				432
Less accumulated depreciation		(81	)			(71	)
Net property, plant, and equipment		430				361
Long-term investments		25				31
Total assets	$	933			$	832
Liabilities and Stockholders' Equity
Accounts payable	$	304			$	226
Accrued liabilities		72				77
Income taxes payable		75				63
Total current liabilities		451				366
Bonds payable		199				171
Total liabilities		650				537
Common stock		161				200
Retained earnings		122				95
Total stockholders’ equity		283				295
Total liabilities and stockholders' equity	$	933			$	832

Weaver Company Income Statement For This Year Ended December 31
Sales					$	754
Cost of goods sold						447
Gross margin						307
Selling and administrative expenses						223
Net operating income						84
Nonoperating items:
Gain on sale of investments	$	7
Loss on sale of equipment		(3	)			4
Income before taxes						88
Income taxes						22
Net income					$	66

During this year, Weaver sold some equipment for $18 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $6 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

Required:

1. Using the indirect method, determine the net cash provided by/used in operating activities for this year. (List any deduction in cash and cash outflows as negative amounts.)

2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Answer :

Cash Flow from Operating Activities
Net Income before tax		$            88
Adjustments to be made:
Gain on sale of investments	$         (7)
Loss on sale of equipment	$          3
Depreciation	$        20
Increase in Account receivable	$      (64)
Decrease in Inventory	$        37
Increase in Prepaid expense	$         (4)
Decrease in Accrued Liability	$         (5)
Increase in Accounts payable	$        78
Income Tax Paid	$      (10)	$            48
Cash Flow from Operating Activities		$          136

Answer 2:

Cash Flow statement
Cash Flow from Operating Activities
Net Income before tax		$            88
Adjustments to be made:
Gain on sale of investments	$         (7)
Loss on sale of equipment	$          3
Depreciation	$        20
Increase in Account receivable	$      (64)
Decrease in Inventory	$        37
Increase in Prepaid expense	$         (4)
Decrease in Accrued Liability	$         (5)
Increase in Accounts payable	$        78
Income Tax Paid	$      (10)	$            48
Cash Flow from Operating Activities		$          136
Cash Flow from Investing Activities
Investments sold	$        13
PPE purchased	$    (110)
PPE sold	$        18	$          (79)
Cash Flow from Investing Activities		$          (79)
Cash Flow from Financing Activities
Buyback of stock	$      (39)
Dividends paid	$      (39)
Bonds issued	$        28	$          (50)
Cash Flow from Financing Activities		$          (50)
Total cash Flows		$              7
Add: Opening Cash		$            11
Closing Cash		$            18

Working notes:

PPE a/c
Particulars	Amount	Particulars	Amount
Balance b/d	$    432	Bank	$      18
Bank	$    110	acc depreciation	$      10
		Loss on sale	$        3
		Balance c/d	$    511
	$    542		$    542

and,

Accumulated depreciation a/c
Particulars	Amount	Particulars	Amount
Equipment	$      10	Balance b/d	$      71
		Depreciation	$      20
Balance c/d	$      81
	$      91		$      91

In case of any doubt or clarification, feel free to come back via comments.