Question

1. he 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		$183		$14
   Accounts receivable (net)		55		49
   Inventories		117		99
   Land		250		330
   Equipment		205		175
   Accumulated depreciation—equipment		(68)		(42)
   	Total assets	$742		$625
   Liabilities and Stockholders' Equity
   Accounts payable (merchandise creditors)		$51		$37
   Dividends payable		5		-
   Common stock, $1 par		125		80
   Paid-in capital: Excess of issue price over par—common stock		85		70
   Retained earnings		476		438
   	Total liabilities and stockholders' equity	$742		$625

   The following additional information is taken from the records:

   1. Land was sold for $120.
   2. Equipment was acquired for cash.
   3. There were no disposals of equipment during the year.
   4. The common stock was issued for cash.
   5. There was a $62 credit to Retained Earnings for net income.
   6. There was a $24 debit to Retained Earnings for cash dividends declared.

   a. Prepare a statement of cash flows, using the indirect method of presenting The section of the statement of cash flows that reports the cash transactions affecting the determination of net income.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:
   Cash received from sale of common stock Decrease in accounts receivable Increase in inventories Net income	$
   Adjustments to reconcile net income to net cash flow from operating activities:
   Decrease in accounts receivable Depreciation Increase in accounts receivable Loss on sale of land
   Decrease in inventories Gain on sale of land Increase in accounts payable Loss on sale of land
   Changes in current operating assets and liabilities:
   Decrease in accounts receivable Decrease in inventories Depreciation Increase in accounts receivable
   Decrease in accounts payable Decrease in accounts receivable Decrease in inventories Increase in inventories
   Decrease in accounts payable Depreciation Increase in accounts payable Cash paid for dividends
   Net cash flow from operating activities		$
   Cash flows from (used for) investing activities:
   Cash from sale of land Depreciation Gain on sale of land Cash paid for dividends	$
   Cash used for purchase of equipment Depreciation Increase in inventories Cash paid for purchase of equipment
   Net cash flow from investing activities
   Cash flows from (used for) financing activities:
   Cash from sale of common stock Cash received from sale of land Decrease in accounts payable Depreciation	$
   Cash used for dividends Cash received from sale of land Decrease in inventories Increase in accounts receivable
   Net cash flow from financing activities
   Decrease in cash Increase in cash		$
   Cash at the beginning of the year
   Cash at the end of the year		$

   Feedback

   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 year ended December 31 20Y2
A. Cash Flows from Operating Activity
Net Income	$          62.00
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	$          26.00
Gain on sale of Land	$        (40.00)
Changes in Current operating assets and liabilities
Increase in Accounts receivables	$          (6.00)
Increase in Inventories	$        (18.00)
Increase in Accounts Payable	$          14.00
Net cash flow from Operating activities		$         38.00
B. Cash flows from Investing Activities
Sale of land	$        120.00
Purchase of Equipment	$        (30.00)
Net Cash flows from Investing activities		$         90.00
C. Cash Flows from Financing activities
Issuance of Common Stock	$          60.00
Payments of dividends	$        (19.00)
Cash flows from Financing activities		$         41.00
Net Increase (Decrease) in Cash [A+B+C]		$      169.00
Cash at the beginning		$         14.00
Cash at the end		$      183.00

Requirement b

Answer--------Less

Working

Dividend paid in cash = Dividend declared - Increase in dividend payable.

.

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.