Question

The comparative statements of financial position for 2023 and 2022 and the statement of profit or loss for 2023 are given below for Arduous Company. Additional information from Arduous’ accounting records is also provided.

ARDUOUS COMPANY Comparative Statements of Financial Position December 31, 2023 and 2022 ($ in millions)
	2023				2022
Assets
Cash	$	109			$	81
Accounts receivable		190				194
Investment revenue receivable		6				4
Inventory		205				200
Prepaid insurance		4				8
Long-term investment		156				125
Land		196				150
Buildings and equipment		412				400
Less: Accumulated depreciation		(97	)			(120	)
Patent		30				32
	$	1,211			$	1,074
Liabilities
Accounts payable	$	50			$	65
Salaries payable		6				11
Bond interest payable		8				4
Income tax payable		12				14
Deferred income tax liability		11				8
Notes payable		23				0
Lease liability		75				0
Bonds payable		215				275
Less: Discount on bonds		(22	)			(25	)
Shareholders’ Equity
Ordinary share capital		430				410
Share premium		95				85
Preference share capital		75				0
Retained earnings		242				227
Less: Treasury stock		(9	)			0
	$	1,211			$	1,074

   

ARDUOUS COMPANY Statement of Profit or Loss For Year Ended December 31, 2023 ($ in millions)
Revenues
Sales revenue	$	410
Investment revenue		11
Gain on sale of Treasury bills		2		$	423
Expenses
Cost of goods sold		180
Salaries expense		73
Depreciation expense		12
Patent amortization expense		2
Insurance expense		7
Bond interest expense		28
Loss on sale of equipment		18
Income tax expense		36			356
Net profit				$	67

   
Additional information from the accounting records:

1. Investment revenue includes Arduous Company’s $6 million share of the net profit of Demur Company, an equity method investee.
2. Treasury bills were sold during 2023 at a gain of $2 million. Arduous Company classifies its investments in treasury bills as cash equivalents.
3. A machine originally costing $70 million that was half-depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $17 million.
4. Temporary differences between pre-tax accounting income and taxable income caused the deferred income tax liability to increase by $3 million.
5. The preference shares of Tory Corporation were purchased for $25 million as a long-term investment.
6. Land costing $46 million was acquired by issuing $23 million cash and a 15%, four-year, $23 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, $82 million. Annual lease payments of $7 million are paid at the beginning of each year starting January 1, 2023.
8. $60 million of bonds were retired at maturity.
9. In February, Arduous issued a 1-for-25 bonus issue (4 million ordinary shares). Assume that the bonus issue was valued at the market price of $7.50 per share ($5 par value) at that time, and the corporation law requires a reclassification from retained earnings to issued capital.
10. In April, 1 million ordinary shares were repurchased as treasury shares at a cost of $9 million.

   
Required:
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2023, assuming the company classifies investment revenue as an investing activity and interest and dividends paid as financing activities. Present cash flows from operating activities by the direct method. (A reconciliation schedule is not required.) (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