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 $ 5 D Accounts payable $ 35 I
Accounts receivable $ 110 I Accrued liabilities $ 4 D
Inventory $ 70 D Income taxes payable $ 8 I
Prepaid expenses $ 9 I Bonds payable $ 150 I
Long-term investments $ 6 D Common stock $ 80 D
Property, plant, and equipment $ 185 I Retained earnings $ 54 I
Accumulated depreciation $ 60 I
D = Decrease; I = Increase.

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:

Sales $ 700
Cost of goods sold 400
Gross margin 300
Selling and administrative expenses 184
Net operating income 116
Nonoperating items:
Loss on sale of land $ (6 )
Gain on sale of investments 10 4
Income before taxes 120
Income taxes 36
Net income $ 84
The company’s beginning cash balance was $90 and its ending balance was $85.

Required:

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

Answer 1

The statement of cash flows for Pavolik Company shows the inflows and outflows of cash during the year, divided into operating, investing, and financing activities. The company had a net increase in cash of $309, resulting in an ending cash balance of $85.

Step-by-step explanation:

The statement of cash flows is a financial statement that shows the inflows and outflows of cash during a specific period of time. It is divided into three main sections: operating activities, investing activities, and financing activities.

Based on the information provided, we can prepare the statement of cash flows for Pavolik Company as follows:

1. Operating Activities:

• Net income: $84
• Add back depreciation: $60
• Add loss on sale of land: $6
• Subtract gain on sale of investments: $10
• Changes in working capital:
  • Increase in accounts receivable: $110
  • Decrease in inventory: $70
  • Decrease in prepaid expenses: $9
  • Increase in accounts payable: $35
  • Increase in accrued liabilities: $4
• Net cash provided by operating activities: $314
• Investing Activities:
  • Proceeds from sale of long-term investments: $16
  • Proceeds from sale of land: $9
  • Net cash provided by investing activities: $25
  • Financing Activities:
    • Dividends paid: $30
    • Net cash used in financing activities: $30
  • Net increase in cash: $309
  • Beginning cash balance: $90
  • Ending cash balance: $85