Question

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	$	113			$	83
Accounts receivable		192				198
Investment revenue receivable		10				6
Inventory		209				202
Prepaid insurance		8				12
Long-term investment		164				127
Land		200				152
Buildings and equipment		414				404
Less: Accumulated depreciation		(100	)			(124	)
Patent		34				38
	$	1,244			$	1,098
Liabilities
Accounts payable	$	52			$	69
Salaries payable		10				13
Interest payable (bonds)		12				6
Income tax payable		14				18
Deferred tax liability		15				10
Notes payable		24				0
Lease liability		77				0
Bonds payable		217				279
Less: Discount on bonds		(24	)			(26	)
Shareholders’ Equity
Common stock		436				412
Paid-in capital—excess of par		99				87
Preferred stock		77				0
Retained earnings		246				230
Less: Treasury stock		(11	)			0
	$	1,244			$	1,098

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2021 ($ in millions)
Revenues and gain:
Sales revenue	$	425
Investment revenue		16
Gain on sale of Treasury bills		4		$	445
Expenses and loss:
Cost of goods sold		182
Salaries expense		75
Depreciation expense		13
Amortization expense		4
Insurance expense		9
Interest expense		30
Loss on sale of equipment		22
Income tax expense		38			373
Net income				$	72

Additional information from the accounting records:

1. Investment revenue includes Arduous Company’s $10 million share of the net income of Demur Company, an equity method investee.
2. Treasury bills were sold during 2021 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
3. Equipment originally costing $74 million that was one-half depreciated was rendered unusable by a flood. Most major components of the equipment were unharmed and were sold for $15 million.
4. Temporary differences between pretax accounting income and taxable income caused the deferred tax liability to increase by $5 million.
5. The preferred stock of Tory Corporation was purchased for $27 million as a long-term investment.
6. Land costing $48 million was acquired by issuing $24 million cash and a 12%, four-year, $24 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, $84 million. Annual lease payments of $7 million are paid at the beginning of each year starting January 1, 2021.
8. $62 million of bonds were retired at maturity.
9. In February, Arduous issued dividend (4.8 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 $11.00 million.

Required:
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2021. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Working as follows:

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