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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: 1. Land was sold for $120. 2. Equipment was acquired for cash. 3. There were no disposals of equipment during the year. 4. The common stock was issued for cash. 5. There was a $62 credit to Retained Earnings for net income. 6. There was a $24 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. b. Was Olson-Jones Industries Inc.’s net cash flow from operations more or less than net income? What is the source of this difference?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 17E
Textbook Problem
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The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

Chapter 16, Problem 17E, The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as , example  1

The following additional information is taken from the records:

  1. 1. Land was sold for $120.
  2. 2. Equipment was acquired for cash.
  3. 3. There were no disposals of equipment during the year.
  4. 4. The common stock was issued for cash.
  5. 5. There was a $62 credit to Retained Earnings for net income.
  6. 6. There was a $24 debit to Retained Earnings for cash dividends declared.
  7.        a.            Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
  8.       b.            Chapter 16, Problem 17E, The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as , example  2 Was Olson-Jones Industries Inc.’s net cash flow from operations more or less than net income? What is the source of this difference?

a.

To determine

Prepare statement of cash flows under indirect method.

Explanation of Solution

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         Dividend received
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

Working note: Prepare the schedule in the changes of current assets and liabilities...

b.

To determine

Explain cash flow from operations more or less than net income

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Financial Accounting
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