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

Question

Chapter 21 Homework 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, 2818 and 2817 ($ in millions) 2.9 2018 2017 Assets Cash Accounts receivable Investment revenue receivable Inventory Prepaid insurance Long-term investment Land Buildings and equipment s 140 $ 93 218 16 212 24 137 162 424 Skipped 202 19 219 17 193 220 432 Less: Accumulated depreciation Patent (11e) (144) 47 $1,376 $1,189 Liabilities Accounts payable Salaries payable Bond interest payable Income tax payable Deferred income tax liability Notes payable Lease liability Bonds payable s 62 89 30 16 28 20 19 21 24 35 29 94 227 (34) 299 (48) Less: Discount on bonds Shareholders' Equity Common stock Paid-in capital-excess of par Preferred stock Retained earnings Less: Treasury stock 466 422 97 90 245 (21e 228 $1,376 $1,189 ARDUOUS COMPANY Income Statement For Year Ended December 31, 2018 ($ in millions) Revenues and gain: Sales revenue Investment revenue 528 24

Explanation / Answer

SOLUTION

Cash flow statement-

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

= ($322 - $280) - $23 = 19

Land = Cost of Land - Cash paid for Land

= $58 - $29 = $29

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

= $299 - $227 = $72

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

$245 = $228 + $132 - Dividends

Dividends = $228 + $132 - $245 = $115

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

=8.8 million * $7.50 = $66

Dividend paid = $115 - $66 = $49

Particulars Amount ($) Amount ($) Cash Flows from Operating Activities Net Income 132 Adjustments to reconcile net income to cash flow from operating activities- Depreciation 13 Amortization of Patent 3 Amortization of Discounts (40-34) 6 Loss on machine damage 23 Add: Reduction in Accounts Receivable (218-202) 16 Less: Increase in revenue receivable (19-16) (3) Less: Increase in investment due to equity method (19) Add: Decrease in Prepaid insurance (24-17) 7 Less: Decrease in Accounts Payable (89-62) (27) Less:  Decrease in salary Payable (30-19) (11) Less: Increase in Inventory (219-212) (7) Add: Increase in interest payable (21-16) 5 Less: Decrease in incometax payable (28-24) (4) Add: Increase in Deferred tax liability (35-20) 15 Net cash flows from opearting activities (A) 154 Cash flows from Investing activities Sale of machine components 19 Purchase of long term investments (37) Purchase of Land (29) Net cash used in investing activities (B) (47) Cash flows from financing activities Retirement of bonds payable (72) Payment of lease liability (8) Sale of preferred stock 90 Payments of cash dividends (49) Payment of treasury stock (21) Net cash used in financing activities (C) (60) Net increase in cash (A+B+C) 47 Beginning cash balance 93 Ending cash balance 140

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