The comparative balance sheets for 2016 and 2015 and the income statement for 20
ID: 2601638 • 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 $10 million share of the net income of Demur Company, an equity method investee.
Treasury bills were sold during 2016 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 $54 million was acquired by issuing $27 million cash and a 10%, four-year, $27 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.
$64 million of bonds were retired at maturity.
In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $13 million.
Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.).)
ARDUOUS COMPANYComparative Balance Sheets
December 31, 2016 and 2015
($ in millions) 2016 2015 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 208 154 Buildings and equipment 416 408 Less: Accumulated depreciation (100) (128) Patent 37 39 $ 1,278 $ 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 27 0 Lease liability 86 0 Bonds payable 219 283 Less: Discount on bonds (26) (34) Shareholders’ Equity Common stock 434 414 Paid-in capital—excess of par 99 89 Preferred stock 79 0 Retained earnings 262 229 Less: Treasury stock (13) 0 $ 1,278 $ 1,115
Explanation / Answer
Arduous Company Statement of Cash Flows For the Years Ending December 31, 2016 $ Mn $ Mn Cash Flows from Operating Activities Net Income $73 Add: Tax $40 Loss on Machine $26 Depreciation $11 Patent Amortization $2 Reduction in accounts receivable $8 Reduction in Prepaid insurance $6 Increase in bond interest payable $4 Less: Gain on treasury bills -$2 Gain on investments -$15 Increase in investment receivable -$2 Increase in inventories -$9 Reduction in accounts payable -$19 Reduction in Salaries payable -$10 $113 Income Tax Paid -$38 Cash generated in Operating Activities $69 Cash Flows from Investing Activities Sale of machinery $13 Purchase of building/equipment -$14 Investment revenue $15 Investment in Tory Corporation -$29 Purchase of land -$54 -$69 Cash used in Investing Activities -$69 Cash Flows from Financing Activities Bond Interest Expense -$32 Investment Revenue $15 Redemption of bonds $56 Net Cash from Financing Activities $39 NET INCREASE/(DECREASE) IN CASH $39 Cash at 31 December 2015 $85 Cash at 31 December 2016 $124 Income Tax payable account Particulars $ Particulars $ By Opening Balance 33 To income Tax Paid 38 By Tax Expense 30 To Closing Balance 35 Total 63 Total 63