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	$	6	D	Accounts payable	$	36	I
Accounts receivable	$	115	I	Accrued liabilities	$	4	D
Inventory	$	70	D	Income taxes payable	$	9	I
Prepaid expenses	$	10	I	Bonds payable	$	148	I
Long-term investments	$	7	D	Common stock	$	77	D
Property, plant, and equipment	$	183	I	Retained earnings	$	54	I
Accumulated depreciation	$	59	I

D = Decrease; I = Increase.

Long-term investments that cost the company $7 were sold during the year for $17 and land that cost $16 was sold for $10. 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					$	710
Cost of goods sold						400
Gross margin						310
Selling and administrative expenses						184
Net operating income						126
Nonoperating items:
Loss on sale of land	$	(6	)
Gain on sale of investments		10				4
Income before taxes						130
Income taxes						39
Net income					$	91

The company’s beginning cash balance was $93 and its ending balance was $87.

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