The compratebalance sheets for 2016 and 2015 and the income statement for 2016 a

Question

The compratebalance 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 ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions) ARDUOUS COMPANY Statement of Cash Flows For year ended December 31, 2016 (S in millions) 2016 2015 Assets S 150 S 98 Accounts receivable 207 Investment revenue receivable 217 Prepaid insurance Adjustments for nancesh effects Long-term i Buildings and equipment Patent 207 247 167 434 (113) 154) $1,442 1,233 Liabilities Accounts payable Salaries payable Bond interest payable Income tax payable Deferred income tax liability Notes payable Lease liability Bonds payable $ 67 $ 99 35 21 23 25 29 Changes in operating assets and Wabilities 232 (39) Less: Discount on bonds (42) Shareholders' Equity Common stock Paid-in capital excess of par Preferred stock 92 Retained earnings Less: Treasury stock $1,442 $1,233 ARDUOUS COMPANY Income Statement For Year Ended December 31, 2016 (5 in millions) Revenues and gain: Sales revenue 5575 29 Investment revenue Gain on sale of treasury bills 2 $606 Expenses and loss: Cost of goods sold Salaries expense Depreciation expense Patent amortization expense Insurance expense Bond interest expense Loss on machine damage Income tax expense 197 90 24 45 28 53 45 Net income 5156 Addtional information from the accounting records Investment revenue includes Arduous Company's $23 million share of the net income of Demur Company, an equity method investee b. Treasury bills were sold during 2016 at a gain of $2 million. Arduous Company classifies its investme in Treasury bills as cash equivalents c. A machine oniginally costing $104 mllin that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $24 million. d. Temporary differences between pretax accounting income and taxable income caused the deferred ncome tax lability to increase by 520 million. e. The preferred stock of Tory Corporation was purchased for $42 milion as a long-term investment. f. Land costing $80 million was acquired by surg S40 million cash and a 15%, four-year, $40 million note payable to the seller g The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, 599 million. h. $77 million of bonds were retired at maturity i. In February, Arduous issued a stock dividend (3 million shares). The market price of the $6 par value common stock was $8.50 per share at that time i In Apri, 1 million shares of common stock were repurchased as treasury stock at a cost of $26 million. Required: Prepare the statement of cash flows for Arduous Company using the indirect method (Amounts to be deducted should be indicated with minus sign. Do not round you your answers in millions (i.e., 10,000,000 should be entered as 10.).) r intermediate calculations. Enter

Explanation / Answer

ARDUOUS COMPANY Statement of Cash Flows For year ended December 31, 2016 ($ in millions) Cash flows from operating activities: Net Income $156 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount $3 Depreciation Expense $11 Patent amortization expense $2 Loss on machine damage $28 Changes in operating assets and liabilities: Decrease in accounts receivable $21 Increase in Investment Revenue Receivables -$2 Increase in investment due to equity method income -$23 Increase in Inventory -$6 Decrease in Prepaid insurance $9 Decrease Accounts payable -$32 Decrease Salaries payable -$12 Increase Bond interest payable $4 Decrease Income tax payable -$5 Increase Deferred income tax liability $20 $18 Net cash flows from operating activities $174 Cash flows from investing activities: Sale of machine components $24 Purchase of long-term investment -$42 Purchase of land -$40 Net cash flows from investing activities -$58 Cash flows from financing activities: Retirement of bonds payable -$77 Sale of preferred stock $92 Payment of cash dividends -$53 Purchase of treasury stock -$26 Net cash flows from financing activities -$64 Net increase in cash $52 Cash balance, January 1 $98 Cash balance, December 31 $150 Working Notes :- 2016 2015 Difference Assets Cash $150 $98 $52 Accounts receivable $207 $228 -$21 Investment revenue receivable $23 $21 $2 Inventory $223 $217 $6 Prepaid insurance $21 $30 -$9 Long-term investment $207 $142 $65 Land $247 $167 $80 Buildings and equipment $429 $434 -$5 Less: Accumulated depreciation -$113 -$154 $41 Patent $48 $50 -$2 $1,442 $1,233 Liabilities Accounts payable $67 $99 -$32 Salaries payable $23 $35 -$12 Bond interest payable $25 $21 $4 Income tax payable $29 $34 -$5 Deferred income tax liability $45 $25 $20 Notes payable $40 $0 $40 Lease liability $99 $0 $99 Bonds payable $232 $309 -$77 Less: Discount on bonds -$39 -$42 $3 Shareholders’ Equity $0 $0 Common stock $463 $427 $36 Paid-in capital—excess of par $117 $102 $15 Preferred stock $92 $0 $92 Retained earnings $275 $223 $52 Less: Treasury stock -$26 $0 -$26 $1,442 $1,233 Payment of Dividend Beginning RE $223 Add: NI $156 Less: Common stock purchased + Paid in capital = 36+ 15 -51 Ending RE -275 Payment of Dividend $53

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