Question

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

Asset and Contra-Asset Accounts   Liabilities and Stockholders' Equity Accounts
Cash   $   10   D   Accounts payable   $   40   I
Accounts receivable   $   135   I   Accrued liabilities   $   4   D
Inventory   $   70   D   Income taxes payable   $   13   I
Prepaid expenses   $   14   I   Bonds payable   $   140   I
Long-term investments   $   11   D   Common stock   $   65   D
Property, plant, and equipment   $   175   I   Retained earnings   $   54   I
Accumulated depreciation   $   55   I              
D = Decrease; I = Increase.

Long-term investments that cost the company $11 were sold during the year for $21 and land that cost $20 was sold for $14. 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               $   690
Cost of goods sold                  400
Gross margin                  290
Selling and administrative expenses                  184
Net operating income                  106
Nonoperating items:                    
Loss on sale of land   $   (6   )           
Gain on sale of investments      10            4
Income before taxes                  110
Income taxes                  33
Net income               $   77

The company’s beginning cash balance was $105 and its ending balance was $95.

Required:

Use the direct method to convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

Answer 1