ACCT 1220 Lecture 3: Chapter 1 Notes - ACCT1220
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Problem 21-11 Prepare a statement of cash flows; direct method[LO21-3, 21-8]
The comparative balance sheets for 2016 and 2015 and the incomestatement for 2016 are given below for Arduous Company. Additionalinformation from Arduousâs accounting records is provided also. |
ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions) | ||||
2016 | 2015 | |||
Assets | ||||
Cash | $ | 154 | $ | 100 |
Accountsreceivable | 209 | 232 | ||
Investment revenuereceivable | 25 | 23 | ||
Inventory | 226 | 219 | ||
Prepaidinsurance | 23 | 32 | ||
Long-terminvestment | 213 | 144 | ||
Land | 234 | 169 | ||
Buildings andequipment | 431 | 438 | ||
Less: Accumulateddepreciation | (117) | (158) | ||
Patent | 53 | 56 | ||
$ | 1,451 | $ | 1,255 | |
Liabilities | ||||
Accountspayable | $ | 69 | $ | 103 |
Salariespayable | 25 | 37 | ||
Bond interestpayable | 27 | 23 | ||
Income taxpayable | 31 | 38 | ||
Deferred income taxliability | 49 | 27 | ||
Notes payable | 32 | 0 | ||
Lease liability | 101 | 0 | ||
Bonds payable | 234 | 313 | ||
Less: Discount onbonds | (41) | (46) | ||
Shareholdersâ Equity | ||||
Common stock | 465 | 429 | ||
Paid-incapitalâexcess of par | 119 | 104 | ||
Preferred stock | 94 | 0 | ||
Retainedearnings | 274 | 227 | ||
Less: Treasury stock | (28) | 0 | ||
$ | 1,451 | $ | 1,255 | |
ARDUOUS COMPANY Income Statement For Year Ended December 31, 2016 ($ in millions) | ||||||
Revenues | ||||||
Sales revenue | $ | 589 | ||||
Investmentrevenue | 30 | |||||
Gain on sale oftreasury bills | 2 | $ | 621 | |||
Expenses andloss: | ||||||
Cost of goodssold | 199 | |||||
Salariesexpense | 92 | |||||
Depreciationexpense | 13 | |||||
Patent amortizationexpense | 2 | |||||
Insuranceexpense | 26 | |||||
Bond interestexpense | 47 | |||||
Loss on machinedamage | 34 | |||||
Income taxexpense | 55 | 468 | ||||
Netincome | $ | 153 | ||||
Additionalinformation from the accounting records: | |
a. | Investment revenue includes Arduous Companyâs $25 million shareof 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 investments in Treasury bills ascash equivalents. |
c. | A machine originally costing $108 million that was one-halfdepreciated was rendered unusable by a flood. Most major componentsof the machine were unharmed and were sold for $20 million. |
d. | Temporary differences between pretax accounting income andtaxable income caused the deferred income tax liability to increaseby $22 million. |
e. | The preferred stock of Tory Corporation was purchased for $44million as a long-term investment. |
f. | Land costing $65 million was acquired by issuing $33 millioncash and a 10%, four-year, $32 million note payable to theseller. |
g. | The right to use a building was acquired with a 15-year leaseagreement; present value of lease payments, $101 million. |
h. | $79 million of bonds wereretired at maturity. |
i. | In February, Arduous issued a 4% stock dividend (6 millionshares). The market price of the $6 par value common stock was$8.50 per share at that time. Also the company paid a cashdividend. |
j. | In April, 1 million shares ofcommon stock were repurchased as treasury stock at a cost of $28.00million. |
I NEED HELP WITH CREATING THE CASH FLOW STATEMENT FOR DEC31.
The comparative balance sheets for 2016 and 2015 and the incomestatement for 2016 are given below for Arduous Company. Additionalinformation from Arduousâs accounting records is provided also. |
ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions) | ||||
2016 | 2015 | |||
Assets | ||||
Cash | $ | 146 | $ | 96 |
Accountsreceivable | 205 | 224 | ||
Investment revenuereceivable | 23 | 19 | ||
Inventory | 222 | 215 | ||
Prepaidinsurance | 21 | 28 | ||
Long-terminvestment | 203 | 140 | ||
Land | 241 | 165 | ||
Buildings andequipment | 427 | 430 | ||
Less: Accumulateddepreciation | (109) | (150) | ||
Patent | 43 | 47 | ||
$ | 1,422 | $ | 1,214 | |
Liabilities | ||||
Accountspayable | $ | 65 | $ | 95 |
Salariespayable | 23 | 33 | ||
Bond interestpayable | 25 | 19 | ||
Income taxpayable | 27 | 32 | ||
Deferred income taxliability | 41 | 23 | ||
Notes payable | 38 | 0 | ||
Lease liability | 97 | 0 | ||
Bonds payable | 230 | 305 | ||
Less: Discount onbonds | (37) | (46) | ||
Shareholdersâ Equity | ||||
Common stock | 455 | 425 | ||
Paid-incapitalâexcess of par | 115 | 100 | ||
Preferred stock | 90 | 0 | ||
Retainedearnings | 277 | 228 | ||
Less: Treasury stock | (24) | 0 | ||
$ | 1,422 | $ | 1,214 | |
ARDUOUSCOMPANY Income Statement For Year Ended December 31, 2016 ($ in millions) | ||||||
Revenues andgain: | ||||||
Salesrevenue | $ | 557 | | |||
Investment revenue | 28 | |||||
Gain onsale of treasury bills | 4 | $ | 589 | |||
Expenses and loss: | ||||||
Cost ofgoods sold | 195 | |||||
Salariesexpense | 88 | |||||
Depreciation expense | 9 | |||||
Patentamortization expense | 4 | |||||
Insurance expense | 22 | |||||
Bondinterest expense | 43 | |||||
Loss onmachine damage | 30 | |||||
Incometax expense | 51 | 442 | ||||
Net income | $ | 147 | ||||
Additionalinformation from the accounting records: | |
a. | Investment revenue includes Arduous Companyâs $23 million shareof the net income of Demur Company, an equity method investee. |
b. | Treasury bills were sold during 2016 at a gain of $4 million.Arduous Company classifies its investments in Treasury bills ascash equivalents. |
c. | A machine originally costing $100 million that was one-halfdepreciated was rendered unusable by a flood. Most major componentsof the machine were unharmed and were sold for $20 million. |
d. | Temporary differences between pretax accounting income andtaxable income caused the deferred income tax liability to increaseby $18 million. |
e. | The preferred stock of Tory Corporation was purchased for $40million as a long-term investment. |
f. | Land costing $76 million was acquired by issuing $38 millioncash and a 14%, four-year, $38 million note payable to theseller. |
g. | The right to use a building was acquired with a 15-year leaseagreement; present value of lease payments, $97 million. |
h. | $75 million of bonds were retired at maturity. |
i. | In February, Arduous issued astock dividend (4 million shares). The market price of the $5 parvalue common stock was $7.50 per share at that time. |
j. | In April, 1 million shares of common stock were repurchased astreasury stock at a cost of $24 million. |
Required: | |
Prepare the statement of cash flows for Arduous Company usingthe indirect method. (Amounts to be deductedshould be indicated with a minus sign. Do not round yourintermediate calculations. Enter your answers in millions (i.e.,10,000,000 should be entered as 10.).) |