Question

The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $66 million.

SURMISE COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	2018				2017
Assets
Cash	$	45			$	49
Accounts receivable		82				92
Less: Allowance for uncollectible accounts		(18	)			(5	)
Prepaid expenses		13				9
Inventory		135				120
Long-term investment		92				60
Land		84				84
Buildings and equipment		344				235
Less: Accumulated depreciation		(115	)			(94	)
Patent		18				21
	$	680			$	571
Liabilities
Accounts payable	$	11			$	27
Accrued liabilities		2				13
Notes payable		34				0
Lease liability		101				0
Bonds payable		57				111
Shareholders’ Equity
Common stock		62				50
Paid-in capital—excess of par		255				205
Retained earnings		158				165
	$	680			$	571

Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2018. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Hint: The right to use a building was acquired with a seven-year lease agreement. Annual lease payments of $8 million are paid at January 1 of each year starting in 2018.) (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

Solution: