Question

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	$	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:

2. Prepare a statement of cash flows for the year.

Answer 1

Solution:

Statement of Cash Flows - Pavolik Company
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income		$84.00
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation	$60.00
loss on sale of land	$6.00
Gain on sale of Investment	-$10.00
Increase in Accounts Receivables	-$110.00
Decrease in Inventory	$70.00
Increase in Prepaid Expenses	-$9.00
Increase in Accounts payable	$35.00
Decrease in Accrued Liabilities	-$4.00
Increase in Income Tax payable	$8.00
Total Adjustments		$46.00
Net Cash Flow From Operating Activites (A)		$130.00
Cash Flow from Investing Activities:
Sale of Land	$9.00
Sale of Long term Investment	$16.00
Increase in Property, Plant and Equipment ($185+$15)	-$200.00
Net Cash Flow From Investing Activites (B)		-$175.00
Cash Flow from Financing Activities:
Dividend paid	-$30.00
Bonds Issued	$150.00
Decrease in common stock	-$80.00
Net Cash Flow From Financing Activites (C)		$40.00
Total Cash flow from all activities (A+B+C)		-$5.00
Cash at the beginning of the year		$90.00
Cash at the end of year		$85.00