Question

The comparative statements of financial position for 2023 and 2022 are given below for Surmise Company. Net profit for 2023 was $50 million.

SURMISE COMPANY Comparative Statements of Financial Position December 31, 2023 and 2022 ($ in millions)
	2023				2022
Assets
Cash	$	36			$	40
Accounts receivable		92				96
Less: Allowance for uncollectible accounts		(12	)			(4	)
Prepaid expenses		8				5
Inventory		145				130
Long-term investment		80				40
Land		100				100
Buildings and equipment		420				300
Less: Accumulated depreciation		(142	)			(120	)
Patent		16				17
	$	743			$	604
Liabilities
Accounts payable	$	13			$	32
Accrued liabilities		2				10
Notes payable		35				0
Lease liability		111				0
Bonds payable		65				125
Shareholders’ Equity
Ordinary share capital		60				50
Additional issued capital		245				205
Retained earnings		212				182
	$	743			$	604

Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2023, assuming Surmise classifies interest paid, interest received, and dividends received as operating activities and dividends paid as a financing activity. 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 $9 million are paid on January 1 of each year starting in 2023.) (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