The comparative balance sheets for 2016 and 2015 and the income statement for 20
ID: 2490267 • Letter: T
Question
The comparative balance sheets for 2016 and 2015 and the income statement for 2016 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.
Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.
Treasury bills were sold during 2016 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
A machine originally costing $100 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $20 million.
Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $18 million.
The preferred stock of Tory Corporation was purchased for $40 million as a long-term investment.
Land costing $61 million was acquired by issuing $31 million cash and a 14%, four-year, $30 million note payable to the seller.
The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $97 million.
In February, Arduous issued a 4% stock dividend (6 million shares). The market price of the $5 par value common stock was $7.50 per share at that time. Also the company paid a cash dividend.
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2016. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)
But please explain. thanks
ARDUOUS COMPANYComparative Balance Sheets
December 31, 2016 and 2015
($ in millions) 2016 2015 Assets Cash $ 146 $ 96 Accounts receivable 205 224 Investment revenue receivable 23 19 Inventory 222 215 Prepaid insurance 21 28 Long-term investment 203 140 Land 226 165 Buildings and equipment 427 430 Less: Accumulated depreciation (109) (150) Patent 42 47 $ 1,406 $ 1,214 Liabilities Accounts payable $ 65 $ 95 Salaries payable 23 33 Bond interest payable 25 19 Income tax payable 27 32 Deferred income tax liability 41 23 Notes payable 30 0 Lease liability 97 0 Bonds payable 230 305 Less: Discount on bonds (37) (46) Shareholders’ Equity Common stock 455 425 Paid-in capital—excess of par 115 100 Preferred stock 90 0 Retained earnings 269 228 Less: Treasury stock (24) 0 $ 1,406 $ 1,214
Explanation / Answer
Statement of Cash flows:
Cash flow from operating activities:
Purchases = Closing inventory + COGS - Opening inventory = 222 + 195 - 215 = $202
Cash flow from investing activities:
Share of net income of equity investee has to be excluded having not been realized in cash.
Cash flow from financing activities:
Temporary differences between pretax accounting income and taxable income will not be recorded in cash flow statement being a non cash item.
Lease liability will not be recorded being a non cash item.
Calcuation $ Cash collected from customers Opening + Sales - Closing = 224 + 557 - 205 576 Cash paid to employees Opening + Expense - Closing = 33+88-23 98 Cash paid to suppliers Opening + Purchases - Closing = 95+202-65 232 Interest paid Opening + Expense - Closing = 19+43-25 37 Income taxes paid Opening + Expense - Closing = 32+51-27 56 Cash flow from operations 999