Chapter 21 Homework i 6 The comparative balance sheets for 2018 and 2017 and the

Question

Chapter 21 Homework i 6 The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are given below for Arduous Company Additional information from Arduous's accounting records is provided also ARDUOUS COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions) 2.85 2018 2017 points Assets Cash Accounts receivable Investment revenue receivable Inventory Prepaid insurance Long-term investment Land Buildings and equipment 120 87 196 14 212 12 176 288 418 206 1e 206 19 131 156 412 (132) (103) 36 Print Less Accumulated depreciation Patent $ 1,289 $1,135 Liabilities Accounts payable Salaries payable Bond interest payable Income tax payable Deferred income tax liability Notes payable Lease liability Bonds payable $ 56 $77 14 16 18 23 26 80 221 (28) 1e 21 14 287 (30) Less: Discount on bonds Shareholders' Equity Common stock Paid-in capital-excess of par Preferred stock Retained earnings Less: Treasury stock 416 91 448 107 81 242 227 15)e $ 1,289 1,135 ARDUOUS COMPANY Income Statement For Year Ended December 31, 2018 (s in millions) Revenues and gain:

Explanation / Answer

SOLUTION

Cash flow statement

Cash received from customers

= [Sales revenue + (Accounts receivable in 2017 - Accounts receivable in 2018)]

= [452+ (206-196)] = $462

Investment revenue = Amount of investment revenue-A's company share ofnet income - (Investment revenue receivable in 2018 - Investment revenue receivable in 2017)

= $20 - $14 - ($14 - $10) = $2

Cash paid to suppliers = Cost of goods sold + (Inventory in 2018 - Inventory in 2017) + (Accounts payable in 2017 - Accounts payable in 2018)

= $186 + ($212 - $206) + ($77 - $56)

= $186 + $6 + $21 = $213

Cash paid to employees = Salaries expense + (Salaries payable in 2017 - Salaries payable in 2018)

= $79 + ($22- $ 14) = $87

Cash paid to insurance = Insurance expense - (Prepaid insurance in 2017- Prepaid insurance in 2018)

= $13 - ($19 - $12) = $6

Cash paid for bond interest = Bond interest expense - (Bond interest payable in 2018 -Bond interest payable in 2017) - (Discount on bonds in 2017 - Discount on bonds in 2018)

= $34 - ($16 - $10) - ($30 - $28)

= $34 - $6 - $2 = $26

Cash paid for income tax expense = Income tax expense - (Deferred tax liability in 2018 -Deferred tax liability in 2017) - (Income tax payable in 2017 -Income tax payable in 2018)

= $42 - ($23 - $14) - ($21 - $18)

= $42 - $9 - $3 = $30

Sale of machine component = (Depreciation in 2018 - Depreciation in 2017) - Loss on machine damage

= ($315 - $280) - $27 = $8

Land = Cost of Land - Cash paid for Ladn

= $52 - $26 = $26

Retirement of bonds payable = Bonds payable in 2017 - Bonds payable in 2018

= $287 - $221 = $66

Retained earnings in 2018 = Retained earnings in 2017 + Net income - Dividends

$242 = $227 + $79 - Dividends

Dividends = $227 + $79 - $242 = $64

Stock dividend = Number of stock dividends shares * Par value of share

= 6.4 million * $7.50 = $48

Dividend paid = $64 - $48 = $16

Particulars Amount ($) Amount ($) Cash flows from operating activities Cash inflows- From customers 462 From investment revenue 2 From sale of cash equivalent 4 Total cash receipts 468 Cash outflows- To suppliers of goods 213 To employees 87 For insurance expense 6 For bond interest expense 26 For income taxes 30 Total cash payments 362 Net cash flows from operating activities (A) 106 Cash flows from Investing activities Sale of machine components 8 Purchase of long term investments (31) Purchase of Land (26) Net cash used in investing activities (B) (49) Cash flows from financing activities Retirement of bonds payable (66) Payment of lease liability (8) Sale of preferred stock 81 Payments of cash dividends (16) Payment of treasury stock (15) Net cash used in financing activities (C) (24) Net increase in cash (A+B+C)) 33 Beginning cash balance 87 Ending cash balance 120

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