Question

The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

ARDUOUS COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	2018				2017
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
Common stock		430				410
Paid-in capital—excess of par		95				85
Preferred stock		75				0
Retained earnings		242				227
Less: Treasury stock		(9	)			0
	$	1,211			$	1,074

   

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2018 ($ in millions)
Revenues and gain:
Sales revenue	$	410
Investment revenue		11
Gain on sale of treasury bills		2		$	423
Expenses and loss:
Cost of goods sold		180
Salaries expense		73
Depreciation expense		12
Patent amortization expense		2
Insurance expense		7
Bond interest expense		28
Loss on machine damage		18
Income tax expense		36			356
Net income				$	67

   
Additional information from the accounting records:

Investment revenue includes Arduous Company’s $6 million share of the net income of Demur Company, an equity method investee.

Treasury bills were sold during 2018 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.

A machine originally costing $70 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $17 million.

Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $3 million.

The preferred stock of Tory Corporation was purchased for $25 million as a long-term investment.

Land costing $46 million was acquired by issuing $23 million cash and a 15%, four-year, $23 million note payable to the seller.

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, 2018.

$60 million of bonds were retired at maturity.

In February, Arduous issued a 4% stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.

In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $9 million.

Required:
Prepare the T-accounts for Arduous Company. (Do not round 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

Statement of Cash flow
Cash flows from operating activities
Operating(direct method)
Collection from customers	414.00	Payment to suppliers	200
From Investment revneue (	3.00	Payment of salaries	78
		Payment of Insurance	3
		Payment of Interest	31
		Payment of Income tax	35
Net cash from operating activities	70.00
Investing
Sale of MACHINE Copmponents	3	Purchase of long tern investment	25
		Purchase of land	23
		Net cash used investing activities	-45
Financing
Issue of Preferred stock	75.00	Retirement of Bonds Payable	60.00
		Payment of lease	7.00
		Purchase of treasury stock	9.00
		Net cash used financing activitie	1.00
Net Increse in cash	24.00
beginning balance	85.00
Ending balance	109.00
working
(a) Sales
sales	410
Add: Decrease in accounts receivable	4
Cash receipts (collections from customers)	414
(b) Cost of goods sold
Cost of good sold	180
Add: ending Inventory	205
Goods avialable for sale	385
Less: Beginning Inventory	200
Purchases	185
dedcut: ending accounts payable	50
	135
Add: Opening Accounts payable	65
Cash purchases (payments for merchandise)	200
(c) Income taxes
Income tax expense	36
Deduct ending income tax payable	12
	24
Add beginning income tax payable	14
	38
Less: ending DTL	11
add: beginning DTL	8
Payment of income tax	35
d) Payment of salaries
Salaries expenses	73
Ded ending salaries payable	6
	67
Add: beginning salaries payable	11
d) Payment of salaries	78
e) Payment of Insurance
Insurance expenses	7
Add: ending prepaid insurance	4
	11
Less: Beginning prepaid imsurance	8
e) Payment of Insurance	3
f) Payment of Interest
Interest expenses	28
Ded ending interest payable	0
	28
Add: beginning interest payable	0
	28
Add: ending discount on bonds pyable	22
	6
Add: beginning discount on bonds	25
f) Payment of Interest	31
From Investment revneue
From Investment revneue (11-6)	5
Add: beginning revenue	4
	9
Less: ending revneue receivable	6
	3
If any doubt please comment