Arduous Company's comparative balance sheets for 2016 and 2015 and the income statement for 2016 are given below . Additional information from Arduous's accounting records is provided also.
ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016, and 2015 ($ in millions)
|Investment revenue receivable||10||8|
|Buildings and equipment||416||408|
|Less: accumulated depreciation||(100)||(128)|
|Bond interest payable||12||8|
|Income tax payable||16||21|
|Deferred income tax liability||19||12|
|Less: Discount on bonds||(26)||(34)|
|Paid-in capital - excess of par||99||89|
|Less: treasury stock||(13)||0|
ARDUOUS COMPANY Income Statement for year ended December 31, 2016 ($ in millions)
|Revenues and gain|
|Gain on sale of treasury bills||2||$459|
|Expenses and loss|
|Cost of goods sold||184|
|Patent amortization expense||2|
|Bond interest expense||32|
|Loss on machine damage||26|
|Income tax expense||40||383|
Additional information from the accounting records:
a. Investment revenue includes Arduous Company's $10 million shares of the net income of Demur Company, an equity method investee.
b. Treasury bills were sold during 2016 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
c. 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.
d. Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $7 million.
e. The preferred stock of Tory Corporation was purchased for $29 million as a long-term investment.
f. Land costing 450 million was acquired by issuing $25 million cash and a 10%, four-year, $25 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, $86 million.
h. $84 million of bonds were retired at maturity
i. In February, Arduous issued a 4% stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at a time.
j. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $13 million.
1. Prepare the statement of cash flows for Arduous Company using the indirect method.
Statement of Cash Flow:
The statement includes three sections; operating, investing, and financing activities sections. The statement of cash flow mixes the activity of the current income statement and the last two balance sheets to reconcile the changes in cash accounts over two periods.
Answer and Explanation:
The operating section starts with net income from the profit and loss statement and adds back depreciation, amortization, and other non-cash expenditures to determine cash income or loss. The report then accounts for changes in working capital (current assets and current liabilities) items from the balance sheet. The investing activity section accounts for adjustments in non-current assets whereas the financing activities segment accounts for changes in non-current liabilities and equity sections of the balance sheets. Once all sections of the statement are completed the combined net effects are then combined with beginning cash flow to determine ending cash balances.
Statement of Cash Flow
For the year ending December 31, 2016
|Cash flows from operating activities|
|Working capital changes:|
|(Increase) / Decrease in trade and other receivables||8|
|(Increase) / Decrease in inventories||-9|
|(Increase) / Decrease in Prepaid Expenses||6|
|Increase / (Decrease) in Accounts Payable||-19|
|Increase / (Decrease) in Salaries Payable||-10|
|Increase / (Decrease) in Interest Payable||4|
|Increase / (Decrease) in Income Tax Payable||2|
|Net cash generated (used) from operating activities||68|
|Cash flows from investing activities|
|Sale (Purchase) of Property, Plant, and Equipment||-97|
|Sale (Acquisition) of portfolio investments||-41|
|Net cash generated (used) from investing activities||-138|
|Cash flows from financing activities|
|Proceeds (Repurchase) from issue of preferred stock||79|
|Proceeds (Repurchase) from issue of common stock||30|
|Proceeds (Repurchase) from repurchase of treasury stock||-13|
|Proceeds (payments) from eEase Payable||86|
|Proceeds (payments) from Bond Payable||-56|
|Proceeds (payments) from Note Payable||25|
|Net cash generated (used) from financing activities||109|
|Net increase in cash and cash equivalents||39|
|Cash and cash equivalents at beginning of period||85|
|Cash and cash equivalents at end of period||124|
Learn more about this topic:
from Accounting 101: Financial AccountingChapter 12 / Lesson 5