The comparative balance sheets for 2018 and 2017 and the income statement for 20
ID: 2591292 • 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.
Additional information from the accounting records:
a. Investment revenue includes Arduous Company’s $15 million share of the net income of Demur Company, an equity method investee.
b. Treasury bills were sold during 2018 at a gain of $1 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
c. A machine originally costing $90 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.
d. Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $13 million.
e. The preferred stock of Tory Corporation was purchased for $35 million as a long-term investment.
f. Land costing $56 million was acquired by issuing $28 million cash and a 10%, four-year, $28 million note payable to the seller.
g. The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $98 million. Annual lease payments of $6 million are paid at the beginning of each year starting January 1, 2018.
h. $70 million of bonds were retired at maturity.
i. In February, Arduous issued a 6% stock dividend (5 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
j. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $19 million.
Required:
Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.).)
Explanation / Answer
ARDUOUS COMPANY
Statement of Cash Flows
For the year ended December 31, 2018
($ in Millions)
Cash Flow from Operating activities
Net Income
101
Adjustments for noncash effects
Depreciation expense
14
Patent amortization expense
1
Amortization of Discount on bonds
7
Investment revenue - noncash
-15
Loss on machine damage
25
Gain on sale of treasury bills
-1
Changes in operating assets and liabilities
Decrease in Accounts receivable
14
Increase in Investment revenue receivable
-1
Increase in Inventory
-6
Decrease in Prepaid Insurance
9
Decrease in Accounts payable
-25
Decrease in Salary payable
-15
Increase in bonds interest payable
3
Decrease in Income tax payable
-6
Increase in deferred income tax liability
13
17
Net cash flow provided by operating activities
118
Cash Flow from Investing activities
Purchase of long term Investments
-35
Purchase of Land
-28
Purchase of Building & Equipment
-6
Gain on sale of treasury bills
1
Sale of Machine
20
Net cash flow used by Investing activities
-48
Cash Flow from Financing activities
Redemption of Bonds payable
-70
Issue of common stock
7.5
Issue of preferred stock
85
Purchase of Treasury stock
-19
Cash Dividend paid
-28.5
Net cash flow provided by Financing activities
-25
Net increase in cash
45
Cash Balance - Beginning
91
Cash Balance - Ending
136
Noncash investing and financing activities
Purchase of Land by issue of Note Payable
28
Purchase of Building with lease liability
92
Issue of Stock dividend - 5 million shares at $7.50 per share
37.5
ARDUOUS COMPANY
Statement of Cash Flows
For the year ended December 31, 2018
($ in Millions)
Cash Flow from Operating activities
Net Income
101
Adjustments for noncash effects
Depreciation expense
14
Patent amortization expense
1
Amortization of Discount on bonds
7
Investment revenue - noncash
-15
Loss on machine damage
25
Gain on sale of treasury bills
-1
Changes in operating assets and liabilities
Decrease in Accounts receivable
14
Increase in Investment revenue receivable
-1
Increase in Inventory
-6
Decrease in Prepaid Insurance
9
Decrease in Accounts payable
-25
Decrease in Salary payable
-15
Increase in bonds interest payable
3
Decrease in Income tax payable
-6
Increase in deferred income tax liability
13
17
Net cash flow provided by operating activities
118
Cash Flow from Investing activities
Purchase of long term Investments
-35
Purchase of Land
-28
Purchase of Building & Equipment
-6
Gain on sale of treasury bills
1
Sale of Machine
20
Net cash flow used by Investing activities
-48
Cash Flow from Financing activities
Redemption of Bonds payable
-70
Issue of common stock
7.5
Issue of preferred stock
85
Purchase of Treasury stock
-19
Cash Dividend paid
-28.5
Net cash flow provided by Financing activities
-25
Net increase in cash
45
Cash Balance - Beginning
91
Cash Balance - Ending
136
Noncash investing and financing activities
Purchase of Land by issue of Note Payable
28
Purchase of Building with lease liability
92
Issue of Stock dividend - 5 million shares at $7.50 per share
37.5