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 Stockholders' Equity Accounts Cash $ 33 D Accounts payable $ 101 I Accounts receivable $ 37 I Accrued liabilities $ 37 D Inventory $ 84 D Income taxes payable $ 42 I Prepaid expenses $ 32 I Bonds payable $ 308 I Long-term investments $ 34 D Common stock $ 148 D Property, plant, and equipment $ 590 I Retained earnings $ 121 I Accumulated depreciation $ 121 I D = Decrease; I = Increase. Long-term investments that cost the company $34 were sold during the year for $72 and land that cost $71 was sold for $37. In addition, the company declared and paid $31 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 $ 1,410 Cost of goods sold 628 Gross margin 782 Selling and administrative expenses 550 Net operating income 232 Nonoperating items: Loss on sale of land $ (34 ) Gain on sale of investments 38 4 Income before taxes 236 Income taxes 84 Net income $ 152 The company’s beginning cash balance was $154 and its ending balance was $121. Required: 1. Use the indirect method to determine the net cash provided by operating activities for the year. 2. Prepare a statement of cash flows for the year.

Explanation / Answer

1. Use the indirect method to determine the net cash provided by operating activities for the year.

2. Prepare a statement of cash flows for the year.

Cash flow from operating activities Net income 152 Adjustment to reconcile net income Depreciation exp 121 Loss on sale of land 34 Gain on sale of investment (38) Increase account payable 101 Increase account receivable (37) Decrease accured liabilities (37) Decrease inventory 84 Increase income tax payable 42 Inceaase prepaid exp (32) Net cash flow from operating activities 390

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