Long-term investments that had cost the company $27 were sold during the year fo

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      Long-term investments that had cost the company $27 were sold during the year for $58, and land that had cost $57 was sold for $30. In addition, the company declared and paid $24 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.

  

   

  

  

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.)

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

The following changes took place last year in Pavolik Company’s balance sheet accounts: avolik Company Statement of Cash Flows (partial) Adjustments to convert net income to a cash basis Adjustments to convert net income to a cash basis:

Explanation / Answer

Cash flow from operating activities Amount Net Income 124 Adjustments to convert net income to cash basis 196 Loss on sale of land 27 Gain on sale of Investment -31 Increase in accounts receivables -30 Decrease in Inventory 70 Increase in Prepaid expense -25 Increase in accounts Payable 80 Decrease in accrues liabilities -30 Increase in income tax payable 35 Increse in accumulated depreciation 100 Net Cash flow from operataing activities - A 320 Cash flow from investing activities Sale of long term investment 58 Sale of land 30 Acquired Property plant and equipment * -542 Net Cash flow from investing activities - B -454 Cash flow from financing activities Issue of Bonds 252 Retirement of Common stock -120 Dividend declared -24 Net Cash flow from financing activities - C 108 Net increase incash and cash equivalent = A +B +C -26 Add: Cash and cash equivalent at beginning 140 Cash and cash equivalent at end 114 0 * During the year we sold land worth $ 57 and there is net increase in property plant and equipment woth $ 485 therefore total increase will be 485+57, = 542 We accquired assets worth 542 and sold worth 57 therby net increase in assets is = 542-57, = 485 Cash flow statement signifies net change in cash and cash equivalent on account of 3 major activities of business i.e operating - it recorrds change in net cash on account of change in current assets and current liabilities. Further it also works fro non cash epenses like depreciation Gain and losses are also excluded as these are seperately dealt in investing activities Investing activities apecifies change in cash on account of change in asset base i.e by acquiring and by selling assets Financing activities ralate to arrangement of cash for doing business. It includes all debts and owners equity and costs associated with them

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