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

Question

A comparative balance sheet and income statement for Eaton Company follow: During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011. Using the indirect method, determine the net cash for operating activities for 2011. (Negative amount should be entered with a minus sign.) Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Amounts to be deducted and negative amounts should be indicated with a minus sign.)

Explanation / Answer

Eaton Company Statement of Cashflow For the year ended December 31, 2011 Cash flow from operations (Indirect method) Net Income $           56 Adjustments to convert net income to cash basis Non Cash items Loss on sale of equipment $                      2 Gain on sale of investments $                    -5 Depreciation expense -($ 85 -$70) + $ 10 $                   25 $           22 Changes in working Capital Increase in Accounts Receivable $                  -80 Decrease in Inventories $                   35 Increase in prepaid expenses $                    -2 Increase in Accounts payable $                   75 Decrease in Acrued liabilities $                  -10 Increase in Income tax payable $                      8 $           26 Net cash from Operating Activities(A) $         104 Cash Flow from Investing Activities Cash received on sale of equipment $                   18 Purchase of new equipment-(500 -420) + 30 $               -110 Sale of Investment $                   12 Net cashflow from Investing activities (B) $         -80 Cashflow from Financing Activities Repurchase of own common stock $                  -40 Cash dividends paid (Increase in retained earnings - net income) $                  -16 Increase in Long term bonds payable $                   25 Net Cash Inflow from Financing Activities (.C) $         -31 Net cashflows (A)+ (B)+(.C) $            -7 Opening Cash on January 1, 2011 $           11 Closing Cash December 31, 2011 $             4

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