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		$144		$46
Accounts receivable (net)		82		58
Inventories		51		32
Land		117		131
Equipment		66		51
Accumulated depreciation-equipment		(18)		(9)
	Total Assets	$442		$309
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$56		$46
Dividends payable		9		-
Common stock, $1 par		29		15
Paid-in capital: Excess of issue price over par—common stock		70		36
Retained earnings		278		212
	Total liabilities and stockholders' equity	$442		$309

The following additional information is taken from the records:

Land was sold for $35.

Equipment was acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $95 credit to Retained Earnings for net income.

There was a $29 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:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow from investing activities
Cash flows from (used for) financing activities:
	$
Net cash flow from financing activities
		$
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 a:

Olson-Jones Industries Inc.
Statement of Cash Flows
For year ended December 31, 20Y2
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$95.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense ($18 - $9)	$9.00
Gain on sale of investment ($35 - $14)	-$21.00
Increase in accounts receivables ($82 - $58)	-$24.00
Increase in inventory ($51 - $32)	-$19.00
Increase in accounts payable ($56 - $46)	$10.00
Net Cash provided by operating activities		$50.00
Cash Flow from Investing Activities:
Purchase of Equipment ($66 - $51)	-$15.00
Sale of Land	$35.00
Net Cash Provided by Investing activities		$20.00
Cash Flow from Financing Activities:
Proceed from issue of common stock ($29 + $70 - $15 - $36)	$48.00
Dividend Paid ($0 + $29 - $9)	-$20.00
Net Cash Provided by financing activities		$28.00
Net Increase / (Decrease) in Cash		$98.00
Cash balance at beginning of year		$46.00
Cash balance at the end of year		$144.00

Solution b:

Net Cash flow from operation is $50 which less than net income of $95.