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 $43.

Equipment was acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $98 credit to Retained Earnings for net income.

There was a $30 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 $148 $49 Accounts receivable (net) 84 62 Inventories 53 34 Land 121 138 Equipment 68 54 Accumulated depreciation-equipment (18) (9) Total Assets $456 $328 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $57 $49 Dividends payable 9 - Common stock, $1 par 30 15 Paid-in capital: Excess of issue price over par—common stock 66 38 Retained earnings 294 226 Total liabilities and stockholders' equity $456 $328

Explanation / Answer

Solution

Olson-Jones Industries Inc.

Statement of Cash Flows

For the Year Ended December 31, 20Y2

Cash flows from operating activities:

Net income

$ 98

___________

Adjustments to reconcile net income to net cash flow from operating activities:

Add: Depreciation (18-9)

9

___________

Less: Gain on sale of land (43-17)

( 26)

____________

Changes in current operating assets and liabilities:

Less: Increase in accounts receivable

(22)

_____________

Less: Increase in inventories

(19)

_____________

Add: Increase in accounts payable

8

____________

Add: Increase in dividend payable

9

Net cash flow from operating activities

$___57____

Cash flows from (used for) investing activities:

Cash from sale of land

$43

__________

Purchase of equipment *

(23)

__________

Net cash flow from investing activities

__20_____

Cash flows from (used for) financing activities:

Cash from sale of common stock ($ 15+ $ 28)

$43

_________

Dividend payment**

(21)

Net cash flow from financing activities

__22

Net increase in cash ($ 57 + 20+22)

$_____99__

Cash at the beginning of the year

____      49_____

Cash at the end of the year

$____148

*Equipment account

Particulars

Debit Amount ($)

Particulars

Credit Amount ($)

Beginning Balance

54

Current Year depreciation

9

Purchase (Balancing Figure)

23

Ending Balance

68

Total

77

Total

77

**Dividend Payable account

Particulars

Debit Amount ($)

Particulars

Credit Amount ($)

Dividend paid (Balancing Figure)

21

Beginning Balance

0

Ending Balance

9

Transferred from retained earning account

30

Total

30

Total

30

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

Answer:

Olson-Jones Industries Inc.’s net cash flow from operations is $ 57 which is less than net income ($98).

Olson-Jones Industries Inc.

Statement of Cash Flows

For the Year Ended December 31, 20Y2

Cash flows from operating activities:

Net income

$ 98

___________

Adjustments to reconcile net income to net cash flow from operating activities:

Add: Depreciation (18-9)

9

___________

Less: Gain on sale of land (43-17)

( 26)

____________

Changes in current operating assets and liabilities:

Less: Increase in accounts receivable

(22)

_____________

Less: Increase in inventories

(19)

_____________

Add: Increase in accounts payable

8

____________

Add: Increase in dividend payable

9

Net cash flow from operating activities

$___57____

Cash flows from (used for) investing activities:

Cash from sale of land

$43

__________

Purchase of equipment *

(23)

__________

Net cash flow from investing activities

__20_____

Cash flows from (used for) financing activities:

Cash from sale of common stock ($ 15+ $ 28)

$43

_________

Dividend payment**

(21)

Net cash flow from financing activities

__22

Net increase in cash ($ 57 + 20+22)

$_____99__

Cash at the beginning of the year

____      49_____

Cash at the end of the year

$____148

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