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:

D = Decrease; I = Increase.

Long-term investments that cost the company $22 were sold during the year for $48 and land that cost $47 was sold for $25. In addition, the company declared and paid $19 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:

The company’s beginning cash balance was $130 and its ending balance was $109.

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.

Asset and Contra-Asset Accounts Liabilities and Stockholders' Equity Accounts Cash $ 21 D Accounts payable $ 65 I Accounts receivable $ 25 I Accrued liabilities $ 25 D Inventory $ 60 D Income taxes payable $ 30 I Prepaid expenses $ 20 I Bonds payable $ 212 I Long-term investments $ 22 D Common stock $ 100 D Property, plant, and equipment $ 410 I Retained earnings $ 85 I Accumulated depreciation $ 85 I

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.

Additions to property, plant & equipment *

Increase in Property Plant and Equipment After sales of land is $410

Hence total addition to plant and equipment =$410+47 =457

Net income 104 Adjustments to convert net income to a cash basis: Depreciation 85 Increase in accounts receivable -25 Decrease in inventory 60 Increase in prepaid expenses -20 Increase in accounts payable 65 Decrease in accrued liabilities -25 Increase in income taxes payable 30 Gain on sale of long-term investments -26 Loss on sale of land 22 Net cash provided by operating activities 270

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