The comparative balance sheets for 2013 and 2012 are given below for Surmise Com
ID: 2727001 • Letter: T
Question
The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $62 million.
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2013. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Enter your answers in millions. Amounts to be deducted should be indicated with a minus sign.)
Comparative Balance Sheets
December 31, 2013 and 2012
($ in millions) 2013 2012 Assets Cash $ 127 $ 90 Accounts receivable 80 88 Less: Allowance for uncollectible accounts (14) (3) Prepaid expenses 8 7 Inventory 138 125 Long-term investment 80 50 Land 80 80 Buildings and equipment 320 225 Less: Accumulated depreciation (109) (90) Patent 15 16 $ 725 $ 588 Liabilities Accounts payable $ 13 $ 23 Accrued liabilities (3) 11 Notes payable 30 0 Lease liability 95 0 Bonds payable 55 105 Shareholders’ Equity Common stock 60 50 Paid-in capital—excess of par 251 205 Retained earnings 224 194 $ 725 $ 588
Explanation / Answer
Surmise Company Cash flow Statement for the period ending Dec 31. 2013. Indirect Method Details Amt $ Cash Flow From Operating Activities Net Income 62 Adjustments to reconcile net income/loss to net cash provided Add Depreciation 19 Add Amortization 1 Less Investment Income Add : Capital Loss Add: investment Loss Decreased Accounts Receivable 19 Increased Inventory (13) Increased Prepaid Expenses (1) Decreased Accounts Payable (10) Decreased Accrued Expenses (14) Income Tax Payable Total Cash Flow From Operating Activities 63 Cash Flow From Investing Activities Cash Inflow from sales of assets Cash outflow from purchase of assets - As lease hold assumed no cash payment Cash Inflow from sales of investments Cash outflow for investments (30) Total Cash Flow From Investing Activities (30) Cash Flow From Financing Activities Cash received from issue of Common stock 56 Cash Received from Note issue 30 Cash Paid for Dividend Payment (32) Cash paid for Bond redemption (50) TotalCash Flow From Financing Activities 4 Total Cash Flow from Operating. Investing and Financing Activities 37 Intial Cash Balance 90 Net Effect of Cash Flow during the period 37 Closing Cash Balance 127