The comparative balance sheets for 2016 and 2015 and the income statement for 20
ID: 2601640 • 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.
In February, Arduous issued a stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time. Also the company paid a cash dividend.
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2016. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)
ARDUOUS COMPANYComparative Balance Sheets
December 31, 2016 and 2015
($ 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
Workings:
ARDUOUS COMPANY Statement of cash flows for the year ended December31, 2016 Cash flow from operations: Collections from sales 447 Payments to suppliers -212 Payments of salaries -87 Payment for insurance -5 Payment for interest -28 Payment for income tax -52 Net cash flow from operations 63 Cash flow from investment activities Investment revenue 3 Sale of treasury bills 26 Purchase of long term investment -39 Sale of components of machine 13 Purchase of land -27 Cash flow from investing activities -24 Cash flow from financing activities Retirement of bonds -56 Issue of preferred stock 79 Payment of cash dividend -10 Purchase of treasury stock -13 Cash flow from financing activities 0 Net cash flow 39 Beginning cash balance 85 Ending cash balance 124