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		$148		$49
Accounts receivable (net)		84		62
Inventories		53		34
Land		121		138
Equipment		68		54
Accumulated depreciation-equipment		(18)		(9)
	Total Assets	$456		$328
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$57		$49
Dividends payable		9		-
Common stock, $1 par		30		15
Paid-in capital: Excess of issue price over par—common stock		66		38
Retained earnings		294		226
	Total liabilities and stockholders' equity	$456		$328

The following additional information is taken from the records:

Land was sold for $43.

Equipment was acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $98 credit to Retained Earnings for net income.

There was a $30 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		_____________
Decrease in accounts payable		____________
Net cash flow from operating activities		$_______
Cash flows from (used for) investing activities:
Cash from sale of land	$	__________
Increase in inventories		__________
Net cash flow from investing activities		__________
Cash flows from (used for) financing activities:
Cash from sale of common stock	$	_________
Decrease in inventories		__________
Net cash flow from financing activities		__________
Decrease in cash		$________
Cash at the beginning of the year		_________
Cash at the end of the year		$________

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

Answer 1

Solution

Olson-Jones Industries Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash flows from operating activities:
Net income	$ 98	___________
Adjustments to reconcile net income to net cash flow from operating activities:
Add: Depreciation (18-9)	9	___________
Less: Gain on sale of land (43-17)	( 26)	____________
Changes in current operating assets and liabilities:
Less: Increase in accounts receivable	(22)	_____________
Less: Increase in inventories	(19)	_____________
Add: Increase in accounts payable	8	____________
Add: Increase in dividend payable	9
Net cash flow from operating activities		$___57____
Cash flows from (used for) investing activities:
Cash from sale of land	$43	__________
Purchase of equipment *	(23)	__________
Net cash flow from investing activities		__20_____
Cash flows from (used for) financing activities:
Cash from sale of common stock ($ 15+ $ 28)	$43	_________
Dividend payment**	(21)
Net cash flow from financing activities		__22
Net increase in cash ($ 57 + 20+22)		$_____99__
Cash at the beginning of the year		____      49_____
Cash at the end of the year		$____148

*Equipment account

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
Beginning Balance	54	Current Year depreciation	9
Purchase (Balancing Figure)	23	Ending Balance	68
Total	77	Total	77

**Dividend Payable account

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
Dividend paid (Balancing Figure)	21	Beginning Balance	0
Ending Balance	9	Transferred from retained earning account	30
Total	30	Total	30

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

Answer:

Olson-Jones Industries Inc.’s net cash flow from operations is $ 57 which is less than net income ($98).