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	$	49		$	79
Accounts receivable		645			580
Inventory		660			615
Total current assets		1,354			1,274
Property, plant, and equipment		1,515			1,466
Less accumulated depreciation		765			641
Net property, plant, and equipment		750			825
Total assets	$	2,104		$	2,099
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	250		$	155
Accrued liabilities		190			165
Income taxes payable		76			70
Total current liabilities		516			390
Bonds payable		450			620
Total liabilities		966			1,010
Stockholders' equity:
Common stock		161			161
Retained earnings		977			928
Total stockholders' equity		1,138			1,089
Total liabilities and stockholders' equity	$	2,104		$	2,099

Burgess Company Income Statement (dollars in millions)
Sales	$	3,600
Cost of goods sold		2,550
Gross margin		1,050
Selling and administrative expenses		875
Net operating income		175
Nonoperating items:
Gain on sale of equipment		3
Income before taxes		178
Income taxes		63
Net income	$	115

Burgess also provided the following information:

1. The company sold equipment that had an original cost of $13 million and accumulated depreciation of $8 million. The cash proceeds from the sale were $8 million. The gain on the sale was $3 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

Answer-

BURGESS COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$ in millions
Cash flow from operating activities
Net Income		115
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		132
Gain on sale of equipment		-3
Change in operating assets & liabilities
Increase in accounts receivable		-65
Increase in inventory		-45
Increase in income taxes payable		6
Increase in accounts payable		95
Increase in accrued liabilities		25
Net cash flow from operating activities (a)		260
Cash Flow from Investing activities
New equipment purchased		-62
Old equipment sold		8
Net cash Flow from Investing activities (b)		-54
Cash Flow from Financing activities
Cash dividends paid	($928+$115-$977)	-66
Bonds payable paid		-170
Net cash Flow from Financing activities (c)		-236
Net Change in cash c=a+b+c		-30
Beginning cash balance		79
Closing cash balance		49