The following changes took place last year in Pavolik Company’s balance sheet ac

Question

The following changes took place last year in Pavolik Company’s balance sheet accounts: Asset and Contra-Asset Accounts Liabilities and Equity Accounts Cash $ 5 D Accounts payable $ 35 I Accounts receivable $ 110 I Accrued liabilities $ 4 D Inventory $ 70 D Income taxes payable $ 8 I Prepaid expenses $ 9 I Bonds payable $ 150 I Long-term investments $ 6 D Common stock $ 80 D Property, plant, and equipment $ 185 I Retained earnings $ 54 I Accumulated depreciation $ 60 I D = Decrease; I = Increase. Long-term investments that had cost the company $6 were sold during the year for $16 and land that had cost $15 was sold for $9. 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 $ 700 Cost of goods sold 400 Gross margin 300 Selling and administrative expenses 184 Net operating income 116 Nonoperating items: Loss on sale of land $ (6) Gain on sale of investments 10 4 Income before taxes 120 Income taxes 36 Net income $ 84 The company’s beginning cash balance was $90 and its ending balance was $85.

Prepare a statement of cash flows for the year. (List any deduction in cash and cash outflows as negative amounts.) 2. Pavolik Company Statement of Cash Flows Operating activities: Net cash provided by operating activities Investing activities: Proceeds from sale of long-term investments Proceeds from sale of land Additions to property, plant & equipment Financing activities Cash dividends 0 Beginning cash and cash equivalents Ending cash and cash equivalents

Explanation / Answer

statement of cash flow Net income $         84.00 Operating activities Adjustments to convert net income to a cash basis: Depreciation $         60.00 Increase in accounts receivable $    (110.00) Decrease in inventory $         70.00 Increase in prepaid expenses $         (9.00) Increase in accounts payable $         35.00 Decrease in accrued liabilities $         (4.00) Increase in income taxes payable $           8.00 Gain on sale of long-term investments $       (10.00) Loss on sale of land $           6.00 Net cash provided by operating activities $         46.00 Investing activities Proceeds from sale of long-term investments $         16.00 Proceeds from sale of land $           9.00 Additions to property, plant & equipment $    (200.00) Net cash used in investing activities $    (175.00) Financing activities Issuance of bonds payable $       150.00 Purchase of common stock $       (80.00) Cash dividends $       (30.00) Net cash provided by financing activities $         40.00 Net decrease in cash $         (5.00) Beginning cash and cash equivalents $         90.00 Ending cash and cash equivalents $         85.00

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