The comparative balance sheets for 2013 and 2012 are given below for Surmise Com
ID: 2488909 • Letter: T
Question
The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $62 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2013 and 2012 ($ in millions) 2013 2012 Assets Cash $ 127 $ 90 Accounts receivable 80 88 Less: Allowance for uncollectible accounts (14) (3) Prepaid expenses 8 7 Inventory 138 125 Long-term investment 80 50 Land 80 80 Buildings and equipment 320 225 Less: Accumulated depreciation (109) (90) Patent 15 16 $ 725 $ 588 Liabilities Accounts payable $ 13 $ 23 Accrued liabilities (3) 11 Notes payable 30 0 Lease liability 95 0 Bonds payable 55 105 Shareholders’ Equity Common stock 60 50 Paid-in capital—excess of par 251 205 Retained earnings 224 194 $ 725 $ 588 Required: Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2013. 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. Amounts to be deducted should be indicated with a minus sign.) SURMISE COMPANY Statement of Cash Flows For year ended December 31, 2013 ($ in millions) Cash flows from operating activities: Net income $ Adjustments for noncash effects: (Click to select)Depreciation expenseLoss on sale of buildingGain on sale of buildingGain on sale of landBad debt expenseLoss on sale of landPatent amortization expense (Click to select)Depreciation expenseLoss on sale of landGain on sale of landPatent amortization expenseBad debt expenseLoss on sale of buildingGain on sale of building (Click to select)Bad debt expenseLoss on sale of buildingGain on sale of landPatent amortization expenseDepreciation expenseLoss on sale of landGain on sale of building Changes in operating assets and liabilities: (Click to select)Decrease in accounts payableDecrease in accrued liabilitiesIncrease in prepaid expensesDecrease in accounts receivableDecrease in inventoryIncrease in acounts payableIncrease in inventory (Click to select)Decrease in accounts payableIncrease in prepaid expensesDecrease in inventoryDecrease in accrued liabilitiesIncrease in acounts payableDecrease in accounts receivableIncrease in inventory (Click to select)Decrease in inventoryIncrease in inventoryDecrease in accounts payableDecrease in accrued liabilitiesIncrease in prepaid expensesDecrease in accounts receivableIncrease in acounts payable (Click to select)Increase in acounts payableIncrease in inventoryIncrease in prepaid expensesDecrease in accounts payableDecrease in inventoryDecrease in accrued liabilitiesDecrease in accounts receivable (Click to select)Decrease in accrued liabilitiesDecrease in inventoryDecrease in accounts payableIncrease in prepaid expensesIncrease in inventoryDecrease in accounts receivableIncrease in acounts payable Net cash flows from operating activities $ Cash flows from investing activities: (Click to select)Purchase of landSale of landPurchase of long - term investmentIssuance of note payablePurchase of buildingPurchase of short - term investmentSale of equipment Net cash flows from investing activities Cash flows from financing activities: (Click to select)Sale of common stockSale of bonds payablePayment of cash dividendsIssuance of note payablePayments on long - term debtIssuance of bonds payableRetirement of bonds payable (Click to select)Sale of bonds payableSale of common stockPayment of cash dividendsPayments on long - term debtRetirement of bonds payableIssuance of note payableIssuance of bonds payable (Click to select)Payment of cash dividendsIssuance of note payableSale of common stockIssuance of bonds payableSale of bonds payablePayments on long - term debtRetirement of bonds payable (Click to select)Issuance of note payableRetirement of bonds payableIssuance of bonds payablePayment of cash dividendsSale of common stockSale of bonds payablePayments on long - term debt Net cash flows from financing activities (Click to select)Net increase in cashNet decrease in cash Cash balance, January 1 $ Cash balance, December 31 $
Explanation / Answer
Surmise Company Statement of Cash Flows For year ended December 31, 2013 ($ in millions) Cash flows from operating activities: Net income $62 Adjustments for noncash effects: Depreciation expense (109-90) $19 Bad debt expense (14 -3) $11 Patent amortization expense (16-15) $1 Decrease in accounts receivable (88 -80) $8 Increase in inventory (138-125) -$13 Decrease in accounts payable (13-23) -$10 Increase in prepaid expenses (7-8) -$1 Decrease in accrued liabilities (3-11) -$8 Net cash flows from operating activities $69 Cash flows from investing activities: Purchase of long-term investment (80-50) -$30 Net cash flows from investing activities -$30 Cash flows from financing activities: Issuance of note payable $30 Retirement of bonds payable =55-105 -$50 Sale of common stock $50 Payment of cash dividends (62-30) -$32 Net cash flows from financing activities -$2 Net increase in cash $37 Cash balance, January 1 $90 Cash balance, December 31 $127 Noncash investing and financing activities: Acquired buildings by capital lease $95