The table below shows the account balances of Novations, Inc., at the beginning and end of the

Question:

The table below shows the account balances of Novations, Inc., at the beginning and end of the company's accounting period.

..................................................... Debits Dec. 31, 2013 .................. Jan. 1, 2013

Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . $176,400 ................... $ 58,000

Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 ....................... 26,600

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 ...................... 25,400

Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600 ....................... 4,000

Long-Term Investments (at cost) . . . . . . . . . . . . . . . . . . . . . . 6,000 ..................... 16,800

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 ................... 66,000

Treasury Stock (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 ................... 20,000

Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,000

Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000

Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,600

Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000

Total debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $922,600 ................... $216,800

....................................................... Credits Dec. 31, 2013 ................ Jan. 1, 2013

Accumulated Depreciation-Equipment . . . . . . . . . . . . . . $ 19,000 ..................... $ 18,000

Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 ........................ 11,200

Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 ......................... 2,000

Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 ....................... 8,000

Notes Payable-Long-Term . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 ..................... 24,000

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 .................. 100,000

Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . 32,000 .................... 30,000

Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,600* ................... 23,600

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704,000

Gain on Sale of Long-Term Investments . . . . . . . . . . . . . . . . . . . 2,000

Total credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $922,600 ................. $216,800

* Preclosing balance.

The following additional information is available:

(a) All purchases and sales were on account.

(b) Equipment costing $10,000 was sold for $3,000; a loss of $1,000 was recognized on the sale.

(c) Among other items, the operating expenses included depreciation expense of $7,000; interest expense of $2,800; and insurance expense of $2,400.

(d) Equipment was purchased during the year by issuing common stock and by paying the balance ($12,000) in cash.

(e) Treasury stock was sold for $4,000 less than it cost; the decrease in owners' equity was recorded by reducing Retained Earnings. No dividends were paid during the year.

Instructions:

1. Prepare a statement of cash flows for the year ended December 31, 2013, using the direct method of reporting cash flows from operating activities.

2. Comment on the lack of dividend payment. Does a "no-dividend" policy seem appropriate under the current circumstances for Novations, Inc.?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...