Holmes Company reported the following balance sheets at December 31, 2017 and 20

Question

Holmes Company reported the following balance sheets at December 31, 2017 and 2018:

Its income statement for 2018 was as follows:

Additional information:

During 2018, Holmes had the following transactions:

Declared and paid a common dividend of $50 million.

Purchased additional fixed assets, but did not sell any.

Issued $30 million of new debt.

Paid interest on all its debt, and included the interest in Other operating expenses.

Repurchased common shares, but did not issue any.

Required:

Prepare a cash flow statement for Holmes for 2018, using the indirect method to present the operating section. For your calculations, it may be helpful to use the worksheet approach described in the chapter appendix to construct the cash flow statement. (Net cash outflows and amounts to be deducted should be indicated by a minus sign.)

($ in millions) December 31, 2018 2017 Cash $ 45 $ 40 Accounts receivable 170 175 Inventory 250 230 Fixed assets 500 400 Accumulated depreciation (150 ) (120 ) Total assets $ 815 $ 725 Accounts payable $ 100 $ 80 Long-term debt 455 425 Common stock 50 50 Retained earnings 280 200 Treasury stock (70 ) (30 ) Total liabilities and stockholders' equity $ 815 $ 725

Explanation / Answer

Answer:-

Holmes Statement of Cash Flow (Using Indirect Method) For the year ended December,31 2018 Particulars Amount ($ in millions) Net Income 130 Adjustments to reconcile net income to net cash provided by opreating activities Adjustment for non cash effects Depreciation 30 Change in opreating assets & liabilities Decrease in Accounts Receiviable 5 Increase in Inventory -20 Increase in Accounts payable 20 Net cash flow from opreating activities 165

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