The comparative balance sheets for 2016 and 2015 are given below for Surmise Com
ID: 2483933 • Letter: T
Question
The comparative balance sheets for 2016 and 2015 are given below for Surmise Company. Net income for 2016 was $82 million.
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2016. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
SURMISE COMPANYComparative Balance Sheets
December 31, 2016 and 2015
($ in millions) 2016 2015 Assets Cash $ 88 $ 37 Accounts receivable 90 108 Less: Allowance for uncollectible accounts (24) (3) Prepaid expenses 18 17 Inventory 139 116 Long-term investment 141 100 Land 102 102 Buildings and equipment 400 275 Less: Accumulated depreciation (140) (110) Patent 26 28 $ 840 $ 670 Liabilities Accounts payable $ 24 $ 44 Accrued liabilities (2) 21 Notes payable 50 0 Lease liability 125 0 Bonds payable 66 136 Shareholders’ Equity Common stock 70 50 Paid-in capital—excess of par 263 205 Retained earnings 244 214 $ 840 $ 670
Explanation / Answer
Note;
The difference in retained earnings is only 30 million. It is assumed that the profit of 82 million is added to opening balance which gives a return of 296 million. The difference between 296 and 244 is considered as dividend paid. Other caluclations are made by considering the difference between opening balance and closing balance.
Net Income 82 Depreciation 30 Allowanc e for uncollectible accounts 21 Patent write off 2 Cash from Operation 135 Accounts Receivable 18 Prepaid expense -1 Inventory -23 Accounts Payable -20 Accrued Liabilities -23 Notes Payable 50 Working Capital Changes 1 A Cash flow from Operations 136 Long Term Investment -41 Building & equipment -125 B Cash flow from Investments -166 Lease 125 Bonds Payable -70 Common stock 20 Paid in capital excess 58 Dividend paid -52 C Cash from financing 81 A+B+C Total cash generated 51 Opening cash 37 Closing Cash 88