Question

Comparative financial statements for Weaver Company follow:

Weaver Company Comparative Balance Sheet at December 31
	This Year				Last Year
Assets
Cash and cash equivalents	$	18			$	11
Accounts receivable		294				230
Inventory		157				194
Prepaid expenses		9				5
Total current assets		478				440
Property, plant, and equipment		511				432
Less accumulated depreciation		(81	)			(71	)
Net property, plant, and equipment		430				361
Long-term investments		25				31
Total assets	$	933			$	832
Liabilities and Stockholders' Equity
Accounts payable	$	304			$	226
Accrued liabilities		72				77
Income taxes payable		75				63
Total current liabilities		451				366
Bonds payable		199				171
Total liabilities		650				537
Common stock		161				200
Retained earnings		122				95
Total stockholders’ equity		283				295
Total liabilities and stockholders' equity	$	933			$	832

Weaver Company Income Statement For This Year Ended December 31
Sales					$	754
Cost of goods sold						447
Gross margin						307
Selling and administrative expenses						223
Net operating income						84
Nonoperating items:
Gain on sale of investments	$	7
Loss on sale of equipment		(3	)			4
Income before taxes						88
Income taxes						22
Net income					$	66

During this year, Weaver sold some equipment for $18 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $6 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

Required:

1. Using the indirect method, determine the net cash provided by/used in operating activities for this year. (List any deduction in cash and cash outflows as negative amounts.)

2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

REQUIREMENT 1

WEAVER COMPANY

STATEMENT OF CASH FLOWS (INDIRECT METHOD)

FOR THE YEAR ENDED DECEMBER 31

NET CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME		$66
ADJUSTMENT TO RECONCILE NET INCOME TO CASH BASIS:
DEPRECIATION EXPENSES	$20
GAIN ON SALE OF EQUIPMENT	($7)
LOSS ON SALE OF EQUIPMENT	$3
INCREASE IN ACCOUNTS RECEIVABLE	(64)
DECREASE IN INVENTORY	$37
INCREASE IN PREPAID EXPENSES	($4)
INCREASE IN ACCOUNTS PAYABLE	$78
DECREASE IN ACCRUED LIABILITIES	($5)
DECREASE IN INCOME TAX PAYABLE	$12	$70
NET CASH PROVIDED BY OPERATING ACTIVITIES		$136

REQUIREMENT 2

WEAVER COMPANY

STATEMENT OF CASH FLOWS (INDIRECT METHOD)

FOR THE YEAR ENDED DECEMBER 31

NET CASH FLOWS FROM OPERATING ACTIVITIES		$136
NET CASH FLOWS FROM INVESTING ACTIVITIES:
CASH RECEIPT FROM SALE OF EQUIPMENT	$18
PURCHASE OF PLANT AND EQUIPMENT	($110)
CASH RECEIPT FROM SALE OF LONG TERM INVESTMENTS	13
NET CASH USED FOR INVESTING ACTIVITIES		($79)
NET CASH FLOWS FROM FINANCING ACTIVITIES:
CASH RECEIPTS FROM ISSUE OF BONDS	$28
CASH PAID FOR REPURCHASE OF STOCK	($39)
CASH DIVIDENDS PAID	($39)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:		($50)
NET INCREASE (DECREASE) IN CASH		$7
CASH, BEGINNING OF THE YEAR		$11
CASH, END OF THE YEAR		$18

W/N:

DEPRECIATION EXPENSES:

ACCUMULATED DEPRECIATION ACCOUNT

TO PLANT MACHINERY AND EQUIPMENT A/C	$10	BEG BAL	$71
TO ENDING BAL	$81	BY PROFIT & LOSS ACCOUNT (BALANCING FIGURE)	$20
TOTAL	$91	TOTAL	$91

PURCHASE OF EQUIPMENT

PLANT $ EQUIPMENT ACCOUNT

TO BEG BAL	$432	BY CASH	$18
TO CASH PURCHASE(BALANCING FIGURE)	$110	BY ACCUMULATED DEPRECIATION	$10
		BY PROFIT $ LOSS ACCOUNT (LOSS)	$3
		BY ENDING BALANCE	$511
TOTAL	$542	TOTAL	$542

CASH DIVIDENDS PAID

DIVIDENDS PAID = RETAINED EARNINGS BEG BAL + NET INCOME - RETAINED EARNING END BALANCE

= $95 + $66 - $122

= $39