The comparative balance sheets for 2018 and 2017 and the income statement for 20
ID: 2530342 • Letter: T
Question
The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.
ARDUOUS COMPANY
Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)
2018
2017
Assets
Cash
$
124
$
85
Accounts receivable
194
202
Investment revenue receivable
10
8
Inventory
213
204
Prepaid insurance
8
14
Long-term investment
168
129
Land
204
154
Buildings and equipment
422
408
Less: Accumulated depreciation
(100
)
(128
)
Patent
37
39
$
1,280
$
1,115
Liabilities
Accounts payable
$
54
$
73
Salaries payable
10
20
Bond interest payable
12
8
Income tax payable
16
21
Deferred income tax liability
19
12
Notes payable
25
0
Lease liability
86
0
Bonds payable
219
283
Less: Discount on bonds
(26
)
(34
)
Shareholders’ Equity
Common stock
442
414
Paid-in capital—excess of par
103
89
Preferred stock
82
0
Retained earnings
251
229
Less: Treasury stock
(13
)
0
$
1,280
$
1,115
ARDUOUS COMPANY
Income Statement
For Year Ended December 31, 2018
($ in millions)
Revenues and gain:
Sales revenue
$
439
Investment revenue
15
Gain on sale of treasury bills
2
$
456
Expenses and loss:
Cost of goods sold
184
Salaries expense
77
Depreciation expense
11
Patent amortization expense
2
Insurance expense
11
Bond interest expense
32
Loss on machine damage
26
Income tax expense
40
383
Net income
$
73
Additional information from the accounting records:
Investment revenue includes Arduous Company’s $10 million share of the net income of Demur Company, an equity method investee.
Treasury bills were sold during 2018 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
A machine originally costing $78 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $13 million.
Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $7 million.
The preferred stock of Tory Corporation was purchased for $29 million as a long-term investment.
Land costing $50 million was acquired by issuing $25 million cash and a 10%, four-year, $25 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, $86 million. Annual lease payments of $6 million are paid at the beginning of each year starting January 1, 2018.
$64 million of bonds were retired at maturity.
In February, Arduous issued a stock dividend (5.6 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $13 million.
Required:
Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.).)
ARDUOUS COMPANY
Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)
2018
2017
Assets
Cash
$
124
$
85
Accounts receivable
194
202
Investment revenue receivable
10
8
Inventory
213
204
Prepaid insurance
8
14
Long-term investment
168
129
Land
204
154
Buildings and equipment
422
408
Less: Accumulated depreciation
(100
)
(128
)
Patent
37
39
$
1,280
$
1,115
Liabilities
Accounts payable
$
54
$
73
Salaries payable
10
20
Bond interest payable
12
8
Income tax payable
16
21
Deferred income tax liability
19
12
Notes payable
25
0
Lease liability
86
0
Bonds payable
219
283
Less: Discount on bonds
(26
)
(34
)
Shareholders’ Equity
Common stock
442
414
Paid-in capital—excess of par
103
89
Preferred stock
82
0
Retained earnings
251
229
Less: Treasury stock
(13
)
0
$
1,280
$
1,115
Explanation / Answer
The Statement of Cash Flows for Arduous Company using the indirect method Particulars Amount (in millions) Cash Flow from operating activities Net income $73 Add: Depreciation expenses $11 Patent amortization expenses $2 Loss on machine damage $26 Decrease in accounts receivables $8 $47 Less: Increase in Inventory ($9) Decrease in accounts payable ($19) Decrease in salaries payable ($10) ($38) Net Cash Flow from Operating activities $82 Cash Flow from investing activites Cash received from sale of machine $13 Long term investment in Tory corporation ($29) Land purchased 50% cash payment ($25) Annual lease payment ($6) Present value of Lease Liability for building $86 Net cash flow from investing activities $39 Cash Flow from financing activities Bonds retired at maturity ($64) Note payable issued $25 Stock dividend issued ($42) Shares repurchased ($1) Net cash flow from financing activities ($82) Net cash flow for the year $39 Beginning Cash balance $85 Ending Cash balance $124