Exercise 12A-3 Adjust Net Income to a Cash Basis [LO4]

The following changes took place last year in Herald Companys balance sheet accounts:

Asset and Contra-Asset Accounts				Liabilities and Equity Accounts
Cash	$	52	I	Accounts payable	$	25	I
Accounts receivable	$	14	D	Accrued liabilities	$	10	D
Inventory	$	29	I	Income taxes payable	$	12	I
Prepaid expenses	$	6	D	Bonds payable	$	19	D
Long-term investments	$	30	D	Common stock	$	45	I
Property, plant, and equipment	$	148	I	Retained earnings	$	53	I
Accumulated depreciation	$	43	I

D = Decrease; I = Increase.

Long-term investments that had cost the company $50 were sold during the year for $47, and land that had cost $30 was sold for $72. In addition, the company declared and paid $34 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. Herald did not issue any bonds during the year or repurchase any of its own stock.

The companys income statement for the year follows:

Sales			$	602
Cost of goods sold				248
Gross margin				354
Selling and administrative expenses				277
Net operating income				77
Nonoperating items:
Loss on sale of investments	$	(3)
Gain on sale of land		42		39
Income before taxes				116
Income taxes				29
Net income			$	87

The companys beginning cash balance was $102 and its ending balance was $154.

Required:

Use the direct method to convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted and Net cash "used in" operating activities should be indicated with a minus sign and all other amounts as positive values.)

Herald Companys Direct Method of Determining the Net Cash flows from Operating activities
Sales	$
Adjustments to a cash basis:
(Click to select)Increase in accounts receivableIncrease in income taxes payableDecrease in income taxes payableIncrease in inventoryDepreciationLoss on sale of investmentsDecrease in inventoryIncrease in accrued liabilitiesGain on sale of landIncrease in prepaid expensesIncrease in accounts payableDecrease in prepaid expensesDecrease in accounts payableDecrease in accounts receivableDecrease in accrued liabilities		$
Cost of goods sold
Adjustments to a cash basis:
(Click to select)Decrease in inventoryDepreciationIncrease in accrued liabilitiesDecrease in accrued liabilitiesDecrease in accounts payableLoss on sale of investmentsIncrease in inventoryIncrease in prepaid expensesIncrease in accounts payableGain on sale of landDecrease in income taxes payableIncrease in accounts receivableDecrease in accounts receivableDecrease in prepaid expensesIncrease in income taxes payable
(Click to select)Loss on sale of investmentsDecrease in accounts payableIncrease in accounts receivableDecrease in inventoryDecrease in prepaid expensesIncrease in income taxes payableDepreciationDecrease in accrued liabilitiesIncrease in accrued liabilitiesIncrease in accounts payableDecrease in income taxes payableGain on sale of landDecrease in accounts receivableIncrease in prepaid expensesIncrease in inventory
Selling and administrative expenses
Adjustments to a cash basis:
(Click to select)Increase in inventoryDecrease in accounts receivableIncrease in prepaid expensesIncrease in accrued liabilitiesGain on sale of landDecrease in inventoryDecrease in prepaid expensesDecrease in accounts payableDecrease in income taxes payableDecrease in accrued liabilitiesIncrease in income taxes payableLoss on sale of investmentsIncrease in accounts receivableIncrease in accounts payableDepreciation
(Click to select)Decrease in prepaid expensesIncrease in inventoryDecrease in accounts receivableIncrease in accounts receivableDecrease in accrued liabilitiesDecrease in income taxes payableDecrease in accounts payableDepreciationDecrease in inventoryIncrease in accrued liabilitiesIncrease in accounts payableGain on sale of landIncrease in prepaid expensesIncrease in income taxes payableLoss on sale of investments
(Click to select)DepreciationGain on sale of landDecrease in accounts payableIncrease in prepaid expensesIncrease in accounts receivableIncrease in accounts payableIncrease in income taxes payableDecrease in accounts receivableIncrease in inventoryDecrease in accrued liabilitiesIncrease in accrued liabilitiesDecrease in inventoryLoss on sale of investmentsDecrease in income taxes payableDecrease in prepaid expenses
Income taxes
Adjustments to a cash basis:
(Click to select)Increase in inventoryIncrease in income taxes payableIncrease in accrued liabilitiesIncrease in prepaid expensesDecrease in income taxes payableDecrease in inventoryIncrease in accounts receivableIncrease in accounts payableLoss on sale of investmentsDecrease in prepaid expensesDecrease in accounts payableGain on sale of landDecrease in accounts receivableDecrease in accrued liabilitiesDepreciation
Net cash (Click to select)provided byused for operating activities		$