Simple 11:08 AM ezto.mheducation.com The comparative balance sheets for 2016 and

Question

Simple 11:08 AM ezto.mheducation.com The comparative balance sheets for 2016 and 2015 are given below for Surmise Company. Net income for 2016 was $62 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions) 2016 2015 Assets Accounts receivable Prepaid expenses S 127 S 90 80 88 (14) (3) 138 125 80 50 Buildings and equipment 320 225 (109) (0) 15 16 Patent S 725 $ 588 S 13 s 23 Accounts payable Accrued liabilities Notes payable Lease liability Bonds payable Shareholders Equity Common stock Paid-in capital excess of par Retained earnings (3) 11 30 95 55 105 60 50 251 205 224 194 S 725 $ 588 Required Prepare the statement of cash flows of Surmise Company for the yea ended December 31, 2016. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in som account balances. A spreadsheet or T-account analysis will be helpful. (Enter your answers in millions (i.e., 10,000,000 should b entered as 10). Amounts to be deducted should be indicated wit a minus sign.)

Explanation / Answer

STATEMENT OF CASH FLOWS Net income 62 Adjustments for non cash effects: Depreciation expense 19 Bad debts expense 11 Patent amortization expense 1 Changes in opreating assets and liabilities: Decrease in accounts receivable 8 Increase in inventory -13 Decrease in accounts payable -10 Increase in prepaid expenses -1 Decrease in accrued liabilities -14 Net cash flows from operating activities 63 Cash flows from investing activities: Purchase of long term investment -30 Net cash flows from investing activities -30 Cash flows from financing activities: Issuance of note payable 30 Retirement of bonds payable -50 Sale of common stock 56 Payment of cash dividends -32 Net cash flows from financing activities 4 Net increase in cash 37 Cash balance, January 1 90 Cash balance, December 31 127 Non cash investing and financing activities: Buildings and equipments taken on capital lease

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