The comparative balance sheets for 2013 and 2012 are given below for Surmise Com
ID: 2490560 • Letter: T
Question
The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $66 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2013 and 2012 ($ in millions) 2013 2012 Assets Cash $ 103 $ 62 Accounts receivable 82 92 Less: Allowance for uncollectible accounts (18) (5) Prepaid expenses 13 9 Inventory 155 140 Long-term investment 92 60 Land 84 84 Buildings and equipment 336 235 Less: Accumulated depreciation (115) (94) Patent 18 21 $ 750 $ 604 Liabilities Accounts payable $ 15 $ 27 Accrued liabilities (2) 13 Notes payable 34 0 Lease liability 101 0 Bonds payable 57 111 Shareholders’ Equity Common stock 62 50 Paid-in capital—excess of par 255 205 Retained earnings 228 198 $ 750 $ 604 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: 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
notes:
1. Net income is arrived at by taking the difference between retained earnings of two periods
2. The lease liability is a long term liability, hence shown under financing activities
Surmise Company Statement of Cash flows for the period ended December 31, 2013 Cash flows from Operations Net Income 30 Add: depreciation 21 Add: provision for uncollectible amounts 13 Change in Accounts receivable 10 Change in Inventories -15 Change in Prepaid expenses -4 Change in Patent 3 Change in Accounts payable -12 Change in Accrued liabilities -15 Net cash from operating activities 31 Cash flows from Investing activities Purchase of Long term investment -32 Purchase of Building & Equipment -101 Net Cash flows used in Investing activities -133 Cash flows from financing activities Issued Notes payable 34 Lease liability 101 Repayment of Bonds -54 Issue of Common stock 12 Increase in paid in capital 50 Cash flows from financing activities 143 Net cash increase in cash and cash equivalents 41 Beginning Cash balance 62 Ending cash balance 103