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The comparative balance sheets for 2021 and 2020 and the income statement for 2021 are given...

The comparative balance sheets for 2021 and 2020 and the income statement for 2021 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

ARDUOUS COMPANY
Comparative Balance Sheets
December 31, 2021 and 2020
($ in millions)
2021 2020
Assets
Cash $ 138 $ 98
Accounts receivable 207 228
Investment revenue receivable 23 21
Inventory 223 217
Prepaid insurance 21 30
Long-term investment 207 142
Land 231 167
Buildings and equipment 437 434
Less: Accumulated depreciation (113 ) (154 )
Patent 47 50
$ 1,421 $ 1,233
Liabilities
Accounts payable $ 67 $ 99
Salaries payable 23 35
Interest payable (bonds) 25 21
Income tax payable 29 34
Deferred tax liability 45 25
Notes payable 32 0
Lease liability 99 0
Bonds payable 232 309
Less: Discount on bonds (39 ) (42 )
Shareholders’ Equity
Common stock 481 427
Paid-in capital—excess of par 129 102
Preferred stock 92 0
Retained earnings 232 223
Less: Treasury stock (26 ) 0
$ 1,421 $ 1,233
ARDUOUS COMPANY
Income Statement For Year Ended
December 31, 2021
($ in millions)
Revenues and gain:
Sales revenue $ 575
Investment revenue 29
Gain on sale of treasury bills 2 $ 606
Expenses and loss:
Cost of goods sold 197
Salaries expense 90
Depreciation expense 11
Amortization expense 3
Insurance expense 24
Interest expense 45
Loss on sale of equipment 28
Income tax expense 53 451
Net income $ 155


Additional information from the accounting records:

  1. Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.
  2. Treasury bills were sold during 2021 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
  3. Equipment originally costing $104 million that was one-half depreciated was rendered unusable by a flood. Most major components of the equipment were unharmed and were sold for $24 million.
  4. Temporary differences between pretax accounting income and taxable income caused the deferred tax liability to increase by $20 million.
  5. The preferred stock of Tory Corporation was purchased for $42 million as a long-term investment.
  6. Land costing $64 million was acquired by issuing $32 million cash and a 15%, four-year, $32 million note payable to the seller.
  7. The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $107 million. Annual lease payments of $8 million are paid at the beginning of each year starting January 1, 2021.
  8. $77 million of bonds were retired at maturity.
  9. In February, Arduous issued a stock dividend (10.8 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
  10. In April, 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 a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Solutions

Expert Solution

ARDUOUS COMPANY
Statement of Cash Flows
For Year Ended December 31, 2021
($ in millions)
Cash flows from operating activities
Net Income         155
Adjustment for noncash effects:
Depreciation expense           11
Amortization Expense             3
Loss on machine damage           28
Amortization of discounts             3
Changes in current assets and current liabilities
Increase in investment due to equity method income         (23)
Decrease in accounts receivable           21
Increase in investment revenue receivable           (2)
Increase in inventory           (6)
Decrease in prepaid insurance             9
Decrease in accounts payable         (32)
Decrease in salaries payable         (12)
Increase in interest payable             4
Decrease in income tax payable           (5)
Increase in deferred tax liability           20
Net cash provided by operating activities         174
Cash flows from investing activities
Purchase of land         (32)
Purchase of long-term investment         (42)
Sale of machine components           24
Net cash used by investing activities         (50)
Cash flows from financing activities
Purchase of treasury stock         (26)
Payment of dividends         (65)
Retirement of bonds payable         (77)
Sale of preferred stock           92
Payment of lease liability           (8)
Net cash used by financing activities         (84)
Net increase in cash           40
Cash balance January 1           98
Cash balance December 31        138

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