The comparative balance sheets for 2013 and 2012 are given below for Surmise Com
ID: 2489574 • Letter: T
Question
The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $62 million.
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.)
The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $62 million.
SURMISE COMPANYComparative Balance Sheets
December 31, 2013 and 2012
($ 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 COMPANYStatement of Cash Flows
For year ended December 31, 2013
($ in millions) Cash flows from operating activities: Net income $ Adjustments for noncash effects: Changes in operating assets and liabilities: Net cash flows from operating activities $ Cash flows from investing activities: Net cash flows from investing activities Cash flows from financing activities: Net cash flows from financing activities Cash balance, January 1 $ Cash balance, December 31 $
Explanation / Answer
Non Cash Investing and financing activites :
Calculation of Cash Flow Using Indirect Method Particulars Amount Cash Flow from Operating Activities Net Income 62 Adjustments for non-cash effects : Add: Depreciation 19 Add : Bad debt expenses 11 Add : Amortization of Patent 1 Change in operating assets and liabilities : Decrease in account Receivable 8 Increase in Inventory -13 Decrease in account payables -10 Increase in prepaid expenses -1 Decrease in accrued Liabilities -14 Net Cash Flow from Operating Activities (A) 63 Cash Flow from Investing Activities Purchase of Long Term Investment -30 Net Cash Flow from Investing Activities (B) -30 Cash Flow from Financing Activites Repayment of Bond Payable -50 Issuance of note payable 30 Sales of common stock 56 Payment of cash dividend -32 Net Cash Flow from Financing Activities (C) 4 Net Increase/Decrease In Cash & Cash Equivalent 37 Add: Cash Balance at the Beginning of the year 90 Cash Balance at the end of the year 127Non Cash Investing and financing activites :
Acquired Building 95