The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20
ID: 2532206 • Letter: T
Question
The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:
1
Dec. 31, 20Y2
Dec. 31, 20Y1
2
Assets
3
Cash
$488.00
$160.00
4
Accounts receivable (net)
278.00
201.00
5
Inventories
177.00
109.00
6
Land
400.00
448.00
7
Equipment
225.00
172.00
8
Accumulated depreciation-equipment
(58.00)
(29.00)
9
Total assets
$1,510.00
$1,061.00
10
Liabilities and Stockholders’ Equity
11
Accounts payable (merchandise creditors)
$176.00
$160.00
12
Dividends payable
28.00
13
Common stock, $1 par
103.00
55.00
14
Paid-in capital: Excess of issue price over par—common stock
246.00
123.00
15
Retained earnings
957.00
723.00
16
Total liabilities and stockholders’ equity
$1,510.00
$1,061.00
The following additional information is taken from the records:
Was Olson-Jones’s net cash flow from operations more or less than net income? What is the source of this difference?
Labels and Amount Descriptions
5
177.00
109.00
6
400.00
448.00
7
225.00
172.00
8
(58.00)
(29.00)
9
$1,510.00
$1,061.00
10
11
$176.00
$160.00
12
28.00
13
103.00
55.00
14
246.00
123.00
15
957.00
723.00
16
$1,510.00
$1,061.00
The following additional information is taken from the records:
1
Dec. 31, 20Y2
Dec. 31, 20Y1
2
Assets
3
Cash
$488.00
$160.00
4
Accounts receivable (net)
278.00
201.00
5
Inventories
177.00
109.00
6
Land
400.00
448.00
7
Equipment
225.00
172.00
8
Accumulated depreciation-equipment
(58.00)
(29.00)
9
Total assets
$1,510.00
$1,061.00
10
Liabilities and Stockholders’ Equity
11
Accounts payable (merchandise creditors)
$176.00
$160.00
12
Dividends payable
28.00
13
Common stock, $1 par
103.00
55.00
14
Paid-in capital: Excess of issue price over par—common stock
246.00
123.00
15
Retained earnings
957.00
723.00
16
Total liabilities and stockholders’ equity
$1,510.00
$1,061.00
Explanation / Answer
A.
B. Olson-Jones' net cash flow from operations was less than net income. The source of this difference is due to the following:
1. The sale of land is not an operating activity due to which the gain on sale of land is not considered under operating activities but under investing activities and hence deducted from net income resulting in lower cash flow from operations as compared to net income.
2. The increase in current assets namely, accounts receivable and inventories means an outflow of cash. The same is also deducted from net income resulting in lower cash flow from operations as compared to the net income.
Olson-Jones Industries Inc. Statement of Cash Flows For the Year Ended December 31, 20Y2 Cash Flows from Operating Activities: Net income 339.00 Depreciation (58 - 29) 29.00 Gain on sale of land [122 - (448 - 400)] -74.00 Increase in accounts receivable -77.00 Increase in inventories -68.00 Increase in accounts payable 16.00 -174.00 Net cash flow from operating activities 165.00 Cash Flows from Investing Activities: Cash paid for purchase of equipment (225 - 172) 53.00 Cash received from sale of land 122.00 Net cash flow from investing activities 69.00 Cash Flows from Financing Activities Cash received from sale of common stock [(103 + 246) - (55 + 123)] 171.00 Cash paid for dividends (105 - 28) 77.00 Net cash flow from financing activities 94.00 Change in cash 328.00 Cash balance, December 31, 20Y1 160.00 Cash balance, December 31, 20Y2 488.00