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	$	46		$	95
Accounts receivable		710			651
Inventory		685			638
Total current assets		1,441			1,384
Property, plant, and equipment		1,575			1,547
Less accumulated depreciation		812			672
Net property, plant, and equipment		763			875
Total assets	$	2,204		$	2,259
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	274		$	167
Accrued liabilities		187			163
Income taxes payable		91			79
Total current liabilities		552			409
Bonds payable		450			670
Total liabilities		1,002			1,079
Stockholders' equity:
Common stock		180			180
Retained earnings		1,022			1,000
Total stockholders' equity		1,202			1,180
Total liabilities and stockholders' equity	$	2,204		$	2,259

Burgess Company Income Statement (dollars in millions)
Sales	$	3,910
Cost of goods sold		2,680
Gross margin		1,230
Selling and administrative expenses		894
Net operating income		336
Nonoperating items:
Gain on sale of equipment		2
Income before taxes		338
Income taxes		126
Net income	$	212

Burgess also provided the following information:

The company sold equipment that had an original cost of $26 million and accumulated depreciation of $14 million. The cash proceeds from the sale were $14 million. The gain on the sale was $2 million.

1. The company did not issue any new bonds during the year.
2. The company paid a cash dividend during the year.
3. The company did not complete any common stock transactions during the year.

Required:

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

Burgess Company
Cash flow statement - Indirect method
For the year ended Dec 31 current year (amounts in $ millions)
cash flow from operating activities
net income		212
adjustments to reconcile net income to net cash flow from operating activities:
gain on sale of equipment	-2
depreciation expenses	154
increase in accounts receivable	-59
increase in inventory	-47
increase in accrued liabilities	24
increase in accounts payable	107
increase in tax payable	12	189
net cash flow from operating activities		401
cash flow fom invensting activities:
sale of equipment	14
purchase of equipment	-54
net cash flow from investing activities		-40
cash flow from financing activities:
repayment of bond	-220
payment of dividend	-190
net cash flow from investing activities		-410
net change in cash flow		-49
cash balance at the beginning		95
cash balance at the end		46

beginning retained earnings + net income - dividend = ending retained earnings

dividend calculation
beginning retained earnings	1000
add:net income	212
less dividend	?
ending retained earnings	1022
dividend	190