Question

A comparative balance sheet and an income statement for Burgess Company are given below: Burgess Company Comparative Balance Sheet (dollars in millions) Ending Balance Beginning Balance Assets Current assets: Cash and cash equivalents $ 48 $ 99 Accounts receivable 730 669 Inventory 695 646 Total current assets 1,473 1,414 Property, plant, and equipment 1,595 1,565 Less accumulated depreciation 824 678 Net property,plant, and equipment 771 887 Total assets $ 2,244 $ 2,301 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 278 $ 169 Accrued liabilities 189 161 Income taxes payable 95 81 Total current liabilities 562 411 Bonds payable 460 690 Total liabilities 1,022 1,101 Stockholders' equity: Common stock 190 190 Retained earnings 1,032 1,010 Total stockholders' equity 1,222 1,200 Total liabilities and stockholders' equity $ 2,244 $ 2,301 Burgess Company Income Statement (dollars in millions) Sales $ 3,970 Cost of goods sold 2,720 Gross margin 1,250 Selling and administrative expenses 898 Net operating income 352 Nonoperating items: Gain on sale of equipment 2 Income before taxes 354 Income taxes 130 Net income $ 224 Burgess also provided the following information: 1. The company sold equipment that had an original cost of $30 million and accumulated depreciation of $16 million. The cash proceeds from the sale were $16 million. The gain on the sale was $2 million. 2. The company did not issue any new bonds during the year. 3. The company paid a cash dividend during the year. 4. The company did not complete any common stock transactions during the year. Required: 1. Using the indirect method, prepare a statement of cash flows for the year. (Enter your answers in millions not in dollars . List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Working Note:

Account Head	Year End	Year Beginning	Difference
Assets:
Cash and Cash Equivalents	48	99	(51)
Account Receivables	730	669	61
Inventory	695	640	55
Property Plant and Equipment less Depreciation	771	887	(116)
Total Assets	2244	2301
Liabilities and Equity:
Account Payable	278	169	109
Accrued Liability	189	161	28
Income Tax Payable	95	81	14
Bond Payable	460	690	(230)
Common Stock	190	190	0
Retained Earning	1032	1010	22
Total Liabilities	2244	2301

Cash Flow from Indirect Method:

Net Profit before Tax	354
Add: Decrease in Current Assets and Increase in Current Liabilities
1. Account Payable	109
2. Accrued Liability	28
3. Depreciation	102
4. Transfer to Reserve	22
Less: Increase in Current Assets and Decrease in Current Liablities
1. Account Receivables	(61)
2. Inventory	(55)
3. Gain from Sale of Equipment	(2)
4. Tax	(144)
Cash Flow from Operating Income (A)	353
Sale of Equipment	16
Cash Flow from Investing Activity (B)	16
Redemption of Bond	(230)
Cash Dividend Paid (Balancing Fig)	(190)
Cash Flow from Financing Acitivity (C)	(420)
Net Cash Flow (A+B+C)	(51)
Opening Cash Flow	99
Closing Cash Flow	48