Question

The following changes took place last year in Pavolik Company's balance sheet accounts: Asset and Contra-Asset Accounts Cash Accounts receivable Inventory Prepaid expenses Long-term investments Property, plant, and equipment Accumulated depreciation D= Decrease; I = Increase. Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: $5 D $ 110 I $70 D $9 1 $6 D $185 I $60 I Loss on sale of land Gain on sale of investments Income before taxes Income taxes Net income Liabilities and Stockholders' Equity Accounts Accounts payable Accrued liabilities Long-term investments that cost the company $6 were sold during the year for $16 and land that cost $15 was sold for $9. In addition, the company declared and paid $30 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: $ (6) 10 Income taxes payable Bonds payable Common stock Retained earnings $ 700 400 300 184 116 4 120 36 $84 The company's beginning cash balance was $90 and its ending balance was $85. $35 I $4 D $81 $ 150 I $80 D $54 I 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.

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Answer 1

Using the indirect method, the net cash provided by operating activities is $174.

The statement of cash flows shows $174 from operating activities, $25 from investing activities, and $-30 from financing activities, resulting in a net decrease in cash of $-5.

Step-by-step explanation:

To determine the net cash provided by operating activities using the indirect method, we need to analyze the changes in the balance sheet accounts and the income statement. Here are the steps:

1. Start with the net income: $84.
2. Add back non-operating items: Loss on sale of land ($6) and Gain on sale of investments ($10).
3. Adjust for changes in current assets: Increase in accounts receivable ($110), decrease in inventory ($70), decrease in prepaid expenses ($9).
4. Adjust for changes in current liabilities: Increase in accounts payable ($35) and increase in accrued liabilities ($4).
5. Adjust for changes in long-term investments: Proceeds from the sale of long-term investments ($16).

The net cash provided by operating activities using the indirect method is $174.

To prepare the statement of cash flows, we need to categorize the cash flows into three sections: operating activities, investing activities, and financing activities. Here are the steps:

1. Start with the net cash provided by operating activities: $174.
2. Determine the cash flows from investing activities: Proceeds from the sale of long-term investments ($16) and proceeds from the sale of land ($9).
3. Determine the cash flows from financing activities: Cash dividends paid ($30).
4. Calculate the net increase/decrease in cash: Subtract the cash flows from investing and financing activities from the beginning cash balance ($90) to get the ending cash balance ($85).

Based on the above steps, the statement of cash flows for the year would be as follows:

Statement of Cash Flows:

Cash Flows from Operating Activities: $174

Cash Flows from Investing Activities: $25

Cash Flows from Financing Activities: $-30

Net Increase/Decrease in Cash: $-5

Beginning Cash Balance: $90

Ending Cash Balance: $85