Question

The following changes took place last year in Pavolik Company’s balance sheet accounts:

  

Asset and Contra-Asset Accounts				Liabilities and Equity Accounts
Cash	$	8	D	Accounts payable	$	26	I
Accounts receivable	$	12	I	Accrued liabilities	$	12	D
Inventory	$	34	D	Income taxes payable	$	17	I
Prepaid expenses	$	7	I	Bonds payable	$	108	I
Long-term investments	$	9	D	Common stock	$	48	D
Property, plant, and equipment	$	215	I	Retained earnings	$	46	I
Accumulated depreciation	$	46	I	I- increase D-decrease
Long-term investments that had cost the company $9 were sold during the year for $22, and land that had cost $21 was sold for $12. In addition, the company declared and paid $6 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			$	660
Cost of goods sold				278
Gross margin				382
Selling and administrative expenses				300
Net operating income				82
Nonoperating items:
Loss on sale of land	$	(9)
Gain on sale of investment		13		4
Income before taxes				86
Income taxes				34
Net income			$	52

The company’s beginning cash balance was $104 and its ending balance was $96.

1. Using the indirect method, determine the net cash provided by / used in operating activities for the year.

2.

Prepare a statement of cash flows for the year

Answer 1

1)

Pavolik Company
Statement of Cash flow
For the year
(Indirect Method)
Cash flow from operating activities:
Net Income					$          52
Depreciation Expense					46
Loss on sale of land					9
Gain on sale of investment					-13
Adjustments of working capital:
Increase of accounts receivable					-12
Decrease of inventory					34
Increase of prepaid expense					-7
Increase of accounts payable					26
Decrease of accrued liabilities					-12
Increase of income tax payable					17
Net Cash provided by Operating activities					140

2)

Pavolik Company
Statement of Cash flow
For the year
(Indirect Method)
Cash flow from operating activities:
Net Income					$          52
Depreciation Expense					46
Loss on sale of land					9
Gain on sale of investment					-13
Adjustments of working capital:
Increase of accounts receivable					-12
Decrease of inventory					34
Increase of prepaid expense					-7
Increase of accounts payable					26
Decrease of accrued liabilities					-12
Increase of income tax payable					17
Net Cash provided by Operating activities					140
Cash flow from investing activities:
Sale of long-term investments					22
Sale of land					12
Purchase of Equipment					-236
Net Cash used by investing activities					-202
Cash flow from financing activities:
Dividend paid					-6
Issuance of bonds payable					108
Repurchase of common stock					-48
Net cash provided by financing actiivties					54
Net Cash flow for the year					-8
Cash at the beginning of year					104
Cash at the end of Year					96
Working:
# 1 Calculation of purchase of equipment
Increase of Property, plant, and equipment					215
Cost of sod land					21
Net Purchase of Property, plant, and equipment					236