Question

Use the following comparative Balance Sheets, Income Statement, and additional information to prepare the 2018 Statement of Cash Flows for United Brands Corporation.

Required:

Prepare an entire Statement of Cash Flows (all three sections) using the indirect method for the Operating Activities section.

Prepare the Operating Activities section using the direct method.

United Brands Corporation

Balance Sheets

December 31, 2018 and 2017

($ in millions)

2018 2017 Incr (Decr)

ASSETS

Current Assets:

Cash $41 $20 $21

Accounts receivable 32 30 2

Inventory 46 50 (4)

Prepaid insurance 3 6 (3)

Property, Plant, & Equipment:

Land 80 60 20

Equipment 81 75 6

Less: Accumulated depreciation (16) (20) (4)

Total Assets $267 $221

LIABILITIES

Current Liabilities:

Accounts payable $26 $20 $6

Salaries payable 3 1 2

Income tax payable 6 8 (2)

Notes payable, current 34 47 (13)

Long-term Liabilities:

Notes payable, long-term 20 0 20

EQUITY

Common stock, $10 par, 50 million

shares authorized, 13 million issued in 2018,

10 million issued in 2017 $130 $100 $30

Paid-in capital in excess of par-common stock 29 20 9

Retained Earnings 19 25 (6)

Total Liabilities and Equity $267 $221

United Brands Corporation

Income Statement

for the year ended December 31, 2018

($ in millions)

Sales revenue $100

Cost of goods sold (60)

Gross profit $40

Operating expenses:

Salaries expense (13)

Depreciation expense (3)

Insurance expense (7)

Income from operations $17

Other income and expenses:

Interest expense (2)

Gain on sale of land 8

Loss on sale of equipment (2)

Income before income tax $21

Income tax expense (9)

Net income $12

Additional information for 2018 transactions:

All inventory is purchased on account, and the Accounts Payable account is used exclusively for inventory purchases.

A portion of the company land was sold for $18 million in cash. This land was originally purchased in a previous year for $10 million.

Land was purchased for $30 million cash for use as a parking lot.

Equipment was sold in 2018 that had an Accumulated Depreciation balance of $7 million on the date of sale. The equipment originally cost $14 million and was sold at a loss for cash. (HINT: You must determine the amount of cash received.)

In 2018, new equipment was acquired by issuing a 12%, five-year, $20 million note payable to the seller.

During 2018, $55 million of short-term (current) notes payable were paid in cash and $42 million of cash was borrowed in the form of short-term debt (current notes payable).

The increase in the common stock account is attributed to two transactions:

Issuance of a 10% stock dividend (1 million shares) when the market price was $13 per share.

Issuance of 2 million shares for cash when the market price was $13 per share.

Cash dividends were declared and paid to shareholders. (HINT: You must determine the amount of cash dividends paid.)

Answer 1