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 $ 13 D Accounts payable $ 41 I Accounts receivable $ 17 I Accrued liabilities $ 17 D Inventory $ 44 D Income taxes payable $ 22 I Prepaid expenses $ 12 I Bonds payable $ 148 I Long-term investments $ 14 D Common stock $ 68 D Property, plant, and equipment $ 290 I Retained earnings $ 61 I Accumulated depreciation $ 61 I D = Decrease; I = Increase.

Long-term investments that had cost the company $14 were sold during the year for $32, and land that had cost $31 was sold for $17. In addition, the company declared and paid $11 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 $ 810 Cost of goods sold 348 Gross margin 462 Selling and administrative expenses 350 Net operating income 112 Nonoperating items: Loss on sale of land $ (14) Gain on sale of investment 18 4 Income before taxes 116 Income taxes 44 Net income $ 72 The company’s beginning cash balance was $114 and its ending balance was $101.

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

2. Prepare a statement of cash flows for the year. (List any deduction in cash and cash outflows as negative amounts.)

Explanation / Answer

1)

2)

Statement of Cash Flows Cash flows from operating activities Profit before taxation                116.00 Adjustments for: Depreciation Gain on sale of Investment               (18.00) Loss on the sale of property, plant & equipment                 14.00 Working capital changes: (Increase) / Decrease in trade and other receivables               (17.00) (Increase) / Decrease in prepaid expenses               (12.00) (Increase) / Decrease in inventories                 44.00 Increase / (Decrease) in accrued liabilities               (17.00) Increase / (Decrease) in trade payables                 41.00 Cash generated from operations                151.00 Income taxes paid (44-22)               (20.00) Dividends paid               (11.00) Net cash from operating activities                120.00

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