A comparative balance sheet and income statement for Eaton Company follow: Eaton

Question

A comparative balance sheet and income statement for Eaton Company follow: Eaton Company Comparative Balance Sheet December 31, 2011 and 2010 2011 2010 Assets Cash $ 11 $ 23 Accounts receivable 510 330 Inventory 160 215 Prepaid expenses 5 3 Total current assets 686 571 Property, plant, and equipment 640 530 Less accumulated depreciation 95 80 Net property, plant, and equipment 545 450 Long-term investments 10 43 Total assets $ 1,241 $ 1,064 Liabilities and Stockholders' Equity Accounts payable $ 350 $ 265 Accrued liabilities 45 60 Income taxes payable 80 73 Total current liabilities 475 398 Bonds payable 330 230 Total liabilities 805 628 Common stock 259 350 Retained earnings 177 86 Total stockholders’ equity 436 436 Total liabilities and stockholders' equity $ 1,241 $ 1,064 Eaton Company Income Statement For the Year Ended December 31, 2011 Sales $ 830 Cost of goods sold 465 Gross margin 365 Selling and administrative expenses 217 Net operating income 148 Nonoperating items: Gain on sale of investments $ 7 Loss on sale of equipment (5) 2 Income before taxes 150 Income taxes 45 Net income $ 105 During 2011, Eaton sold some equipment for $14 that had cost $44 and on which there was accumulated depreciation of $25. In addition, the company sold long-term investments for $40 that had cost $33 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $91 of its own stock. Eaton did not retire any bonds during 2011. Required: 1. Using the direct method, adjust the company’s income statement for 2011 to a cash basis. (Adjustment amounts that are to be deducted and Net cash "used in" operating activities should be indicated with a minus sign and all other amounts as positive values.) Eaton Company Direct Method of Determining the Net Cash flows from Operating activities For the Year Ended December 31, 2011 Sales $ Adjustments to a cash basis: $ Cost of goods sold Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: Net cash operating activities $ 2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Eaton Company Statement of Cash Flows For the Year Ended December 31, 2011 Operating activities: Cash received from customers $ Less cash disbursements for: $ Total cash disbursements Net cash operating activities Investing activities: Net cash investing activities Financing activities: Net cash financing activities Cash balance, beginning Cash balance, ending $ ©2015 McGraw-Hill Education. All rights reserved.

Explanation / Answer

cash receipt from customer = net sales+ begining AR - ending AR

=> 830+330 -510 => 650

payment to supplierss = COGS + begginig AP - Ending AP - Beggining inventory + ending inventory

=> 465 +265 -350 - 215 +160 => 325

income tax = incometax expense + beginning IT payable - Ending IT Payable

=> 45 + 73 -80 => 38

selling and administrtaive => 217

650

LESS:

answer 2

CASH FLOW STATEMENT FOR THE YEAR ENDED 2011 (direct method)

70

CASH FLOW FROM OPERATING ACTIVITIES AMOUNT IN $ RECEIPTS FROM CUSTOMERS

650

LESS:

PAYMENT TO SUPPLIERS 325 SELLING AND ADMINISTRATIVE EXPENSES 217 INCOME TAXES 38 Net Cash flow from Operating Activities 70

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