Statement of Cash Flows—Indirect Method The comparative balance sheet of Olson-J

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:

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.

b. Was Olson-Jones Industries Inc.’s net cash flow from operations more or less than net income?

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

Explanation / Answer

Solution a:

Solution b:

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

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

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