The comparative balance sheets for 2016 and 2015 and the income statement for 20

Question

The comparative balance sheets for 2016 and 2015 and the income statement for 2016 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

   

   

   

Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.

Treasury bills were sold during 2016 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.

A machine originally costing $100 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $20 million.

Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $18 million.

The preferred stock of Tory Corporation was purchased for $40 million as a long-term investment.

Land costing $61 million was acquired by issuing $31 million cash and a 14%, four-year, $30 million note payable to the seller.

The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $97 million.

In February, Arduous issued a 4% stock dividend (6 million shares). The market price of the $5 par value common stock was $7.50 per share at that time. Also the company paid a cash dividend.

   

Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2016. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)

But please explain. thanks

ARDUOUS COMPANY
Comparative Balance Sheets
December 31, 2016 and 2015
($ in millions) 2016 2015   Assets   Cash $ 146    $ 96      Accounts receivable 205    224      Investment revenue receivable 23    19      Inventory 222    215      Prepaid insurance 21    28      Long-term investment 203    140      Land 226    165      Buildings and equipment 427    430          Less: Accumulated depreciation (109) (150)   Patent 42    47    $ 1,406    $ 1,214      Liabilities   Accounts payable $ 65    $ 95      Salaries payable 23    33      Bond interest payable 25    19      Income tax payable 27    32      Deferred income tax liability 41    23      Notes payable 30    0      Lease liability 97    0      Bonds payable 230    305         Less: Discount on bonds (37) (46)   Shareholders’ Equity   Common stock 455    425      Paid-in capital—excess of par 115    100      Preferred stock 90    0      Retained earnings 269    228         Less: Treasury stock (24) 0    $ 1,406    $ 1,214   

Explanation / Answer

Statement of Cash flows:

Cash flow from operating activities:

Purchases = Closing inventory + COGS - Opening inventory = 222 + 195 - 215 = $202

Cash flow from investing activities:

Share of net income of equity investee has to be excluded having not been realized in cash.

Cash flow from financing activities:

Temporary differences between pretax accounting income and taxable income will not be recorded in cash flow statement being a non cash item.

Lease liability will not be recorded being a non cash item.

Calcuation $ Cash collected from customers Opening + Sales - Closing = 224 + 557 - 205 576 Cash paid to employees Opening + Expense - Closing = 33+88-23 98 Cash paid to suppliers Opening + Purchases - Closing = 95+202-65 232 Interest paid Opening + Expense - Closing = 19+43-25 37 Income taxes paid Opening + Expense - Closing = 32+51-27 56 Cash flow from operations 999

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