Question

The chief accountant for Grandview Corporation provides you with the company’s 2021 statement of cash flows and income statement. The accountant has asked for your help with some missing figures in the company’s comparative balance sheets. These financial statements are shown next ($ in millions).

 

Required:
1. Calculate the missing amounts.
2. Prepare the operating activities section of Grandview’s 2021 statement of cash flows using the indirect method. Use a format similar to the one in the Concept Review Exercise at the end of Part B of this chapter.

Answer 1

1.

2020 Cash:

2020 Cash + Net increase in cash = 2021 Cash

2020 Cash + $86 = $145

2020 Cash = $59

 

2021 A/R:

2020 A/R + Cr. Sales – Cash collections = 2021 A/R

 $84 +  80 – 71 = $93

 

2020 Inventory:

2020 A/P + Purchases – Cash paid = 2021 A/P 

$30 + Purchases – 30 = $40

Therefore, Purchases = $40

2020 Inventory + Purchases – 2021 Inventory = Cost of goods sold

2020 Inventory + $40 – 60 = $32

2020 Inventory = $52

 

2020 Accumulated depreciation:

2021 accumulated depreciation less 2021 depreciation = 2020 accumulated depreciation

 

 $65 – 10 = $55

 

2020 Total assets:

$59 + 84 + 52 + 50 + 150 – 55 = $340

 

2021 Total assets:

$145 + 93 + 60 + 150 – 65 = $383

 

2020 Income taxes payable:

2020 Inc. taxes payable + Inc. tax expense – Income taxes paid = 

2021 Inc. taxes payable

2020 Inc. taxes payable =2021 Inc. taxes payable + Taxes paid – Inc. tax expense

2020 Inc. taxes payable = $22 + 9 – 7 = $24

 

2021 Retained earnings:

2020 R/E + Net income – Dividends = 2021 R/E

$47 + 28 – 3   = $72

 

2020 Total liabilities and shareholders’ equity:

$30 + 9 + 24 + 230 + 47 = $340

 

2021 Total liabilities and shareholders’ equity:

$40 + 9 + 22 + 240 + 72 = $383

 

2.

         GRANDVIEW CORPORATION

           Statement of Cash Flows

For the Year Ended December 31, 2021

 ($ in millions)

Cash flows from operating activities:

          Net income                                                              $ 28

          Adjustments for noncash effects:

           Depreciation expense                                             10

           Gain on sale of investments                                 (15)

          Changes in operating assets and liabilities:

           Increase in accounts receivable1                          (9)

           Increase in inventory2                                            (8)

           Increase in accounts payable3                            10

           Decrease in income taxes payable4                   (2)

           Net cash flows from operating activities                       $14

 

1 $93 – 84

2 $60 – 52

3  $40 – 30

4  $22 – 24

 Net cash flows from operating activities                       $14