Exercise 14A-1 Adjust Net Income to a Cash Basis [LO14-4) 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 $ 14D Accounts payable Accounts receivable $ 155 I Accrued liabilities Inventory $ 70D Income taxes payable Prepaid expenses $ 18 1 Bonds payable Long-term investments $ 15 D Common stock Property, plant, and equipment $ 167 I Retained earnings Accumulated depreciation $ 51 I $ 44 I $ 4D $ 17 I $ 132 1 $ 53 D $ 54 I D = Decrease; I = Increase. Long-term investments that cost the company $15 were sold during the year for $25 and land that cost $24 was sold for $18. 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: $ 670 400 270 184 86 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Loss on sale of land Gain on sale of investments Income before taxes Income taxes Net income (8) $ (6) 10 4 90 27 $ 63 The company's beginning cash balance was $117 and its ending balance was $103. The company's beginning cash balance was $117 and its ending balance was $103. Required: Use the direct method to convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Answer is not complete. Pavolik Company Direct Method of Determining the Net Cash flows from Operating activities Sales $ 670 Adjustments to a cash basis: Increase in accounts receivable S 670 Cost of goods sold Adjustments to a cash basis: Increase in accounts payable Decrease in inventory 0 Selling and administrative expenses Adjustments to a cash basis: Increase in prepaid expenses Decrease in accrued liabilities Depreciation OO 0 Income taxes Adjustments to a cash basis: Increase in income taxes payable 0 Net cash provided by operating activities S 670