Question

The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

1		Dec. 31, 20Y2	Dec. 31, 20Y1
2	Assets
3	Cash	$488.00	$160.00
4	Accounts receivable (net)	278.00	201.00
5	Inventories	177.00	109.00
6	Land	400.00	448.00
7	Equipment	225.00	172.00
8	Accumulated depreciation-equipment	(58.00)	(29.00)
9	Total assets	$1,510.00	$1,061.00
10	Liabilities and Stockholders’ Equity
11	Accounts payable (merchandise creditors)	$176.00	$160.00
12	Dividends payable	28.00
13	Common stock, $1 par	103.00	55.00
14	Paid-in capital: Excess of issue price over par—common stock	246.00	123.00
15	Retained earnings	957.00	723.00
16	Total liabilities and stockholders’ equity	$1,510.00	$1,061.00

The following additional information is taken from the records:

A.	Land was sold for $122.
B.	Equipment was acquired for cash.
C.	There were no disposals of equipment during the year.
D.	The common stock was issued for cash.
E.	There was a $339 credit to Retained Earnings for net income.
F.	There was a $105 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. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. In the operating activities section, use the minus sign to indicate cash outflows, decreases in cash and a net cash out flow, if required. In the investing and financing activities section, use a minus sign only to indicate a NET cash outflow for the section.

B.

Was Olson-Jones’s net cash flow from operations more or less than net income? What is the source of this difference? Labels and Amount Descriptions Amortization of intangible assets Cash paid for dividends Cash paid for purchase of equipment Cash received from sale of common stock Cash received from sale of land Change in cash December 31, 20Y2 Decrease in accounts payable Decrease in accounts receivable Decrease in inventories Depreciation For the Year Ended December 31, 20Y2 Gain on sale of land Increase in accounts payable Increase in accounts receivable Increase in inventories Loss on sale of land Net cash flow from operating activities Net cash flow used for operating activities Net cash flow from investing activities Net cash flow used for investing activities Net cash flow from financing activities Net cash flow used for financing activities Net income Net loss

5		177.00	109.00
6		400.00	448.00
7		225.00	172.00
8		(58.00)	(29.00)
9		$1,510.00	$1,061.00
10
11		$176.00	$160.00
12		28.00
13		103.00	55.00
14		246.00	123.00
15		957.00	723.00
16		$1,510.00	$1,061.00

The following additional information is taken from the records:

Answer 1

A.

Olson-Jones Industries Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash Flows from Operating Activities:
Net income		339.00
Depreciation (58 - 29)	29.00
Gain on sale of land [122 - (448 - 400)]	-74.00
Increase in accounts receivable	-77.00
Increase in inventories	-68.00
Increase in accounts payable	16.00	-174.00
Net cash flow from operating activities		165.00
Cash Flows from Investing Activities:
Cash paid for purchase of equipment (225 - 172)	53.00
Cash received from sale of land	122.00
Net cash flow from investing activities		69.00
Cash Flows from Financing Activities
Cash received from sale of common stock [(103 + 246) - (55 + 123)]	171.00
Cash paid for dividends (105 - 28)	77.00
Net cash flow from financing activities		94.00
Change in cash		328.00
Cash balance, December 31, 20Y1		160.00
Cash balance, December 31, 20Y2		488.00

B. Olson-Jones' net cash flow from operations was less than net income. The source of this difference is due to the following:

1. The sale of land is not an operating activity due to which the gain on sale of land is not considered under operating activities but under investing activities and hence deducted from net income resulting in lower cash flow from operations as compared to net income.

2. The increase in current assets namely, accounts receivable and inventories means an outflow of cash. The same is also deducted from net income resulting in lower cash flow from operations as compared to the net income.