The comparative balance sheets for 2016 and 2015 are given below for Surmise Com
ID: 2600141 • Letter: T
Question
The comparative balance sheets for 2016 and 2015 are given below for Surmise Company. Net income for 2016 was $52 million.
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2016. 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 (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
The comparative balance sheets for 2016 and 2015 are given below for Surmise Company. Net income for 2016 was $52 million.
SURMISE COMPANY
Comparative Balance Sheets
December 31, 2016 and 2015
($ in millions) 2016 2015 Assets Cash $ 184 $ 148 Accounts receivable 75 78 Less: Allowance for uncollectible accounts (8) (3) Prepaid expenses 3 2 Inventory 108 100 Long-term investment 45 20 Land 70 70 Buildings and equipment 280 200 Less: Accumulated depreciation (94) (80) Patent 10 12 $ 673 $ 547 Liabilities Accounts payable $ 8 $ 13 Accrued liabilities (1) 5 Notes payable 20 0 Lease liability 80 0 Bonds payable 50 90 Shareholders’ Equity Common stock 55 50 Paid-in capital—excess of par 247 205 Retained earnings 214 184 $ 673 $ 547 Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2016. 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 (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
SURMISE COMPANY Statement of Cash Flows For year ended December 31, 2016 ($ in millions) Adjustments for noncash effects: Changes in operating assets and liabilities:
Explanation / Answer
Cash flows from operating activities: Net income 52 Adjustments for noncash effects: Depreciation expense 14 Bad debt expense 5 Patent amortization expense 2 Changes in operating assets and liabilities: Decrease in accounts receivable 3 Increase in inventory -8 Decrease in accounts payable -5 Increase in prepaid expenses -1 Decrease in accrued liabilities -6 Net cash flows from operating activities 56 Cash flows from investing activities: Purchase of long-term investment -25 Net cash flows from investing activities -25 Cash flows from financing activities: Issuance of note payable 20 Retirement of bonds payable -40 Sale of common stock 47 Payment of cash dividends -22 Net cash flows from financing activities 5 Net increase in cash 36 Cash balance, January 1 148 Cash balance, December 31 184 Noncash investing and financing activities: Acquired buildings by capital lease 80