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	$	136			$	91
Accounts receivable		200				214
Investment revenue receivable		15				14
Inventory		216				210
Prepaid insurance		13				22
Long-term investment		185				135
Land		216				160
Buildings and equipment		428				420
Less: Accumulated depreciation		(109	)			(140	)
Patent		44				45
	$	1,344			$	1,171
Liabilities
Accounts payable	$	60			$	85
Salaries payable		15				30
Bond interest payable		17				14
Income tax payable		22				28
Deferred income tax liability		31				18
Notes payable		28				0
Lease liability		92				0
Bonds payable		225				295
Less: Discount on bonds		(32	)			(39	)
Shareholders’ Equity
Common stock		460				420
Paid-in capital—excess of par		115				95
Preferred stock		88				0
Retained earnings		242				225
Less: Treasury stock		(19	)			0
	$	1,344			$	1,171

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2018 ($ in millions)
Revenues and gain:
Sales revenue	$	494
Investment revenue		20
Gain on sale of treasury bills		1		$	515
Expenses and loss:
Cost of goods sold		190
Salaries expense		83
Depreciation expense		14
Patent amortization expense		1
Insurance expense		17
Bond interest expense		38
Loss on machine damage		25
Income tax expense		46			414
Net income				$	101

Additional information from the accounting records:

Investment revenue includes Arduous Company’s $15 million share of the net income of Demur Company, an equity method investee.

Treasury bills were sold during 2018 at a gain of $1 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.

A machine originally costing $90 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $20 million.

Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $13 million.

The preferred stock of Tory Corporation was purchased for $35 million as a long-term investment.

Land costing $56 million was acquired by issuing $28 million cash and a 10%, four-year, $28 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, $92 million. Annual lease payments of $6 million are paid at the beginning of each year starting January 1, 2018.

$70 million of bonds were retired at maturity.

In February, Arduous issued a stock dividend (8.0 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 $19 million.

Required:
Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.).)

	ARDUOUS COMPANY Statement of Cash Flows For year ended December 31, 2018 ($ in millions) Cash flows from operating activities: Net income Adjustments for noncash effects: Changes in operating assets and liabilities: $0 0 0 $0 Noncash investing and financing activities:

Answer 1

ARDUOUS COMPANY Statement of Cash Flows For year ended December 31, 2018 ($ in millions) Cash flows from operating activities: Net Income $101 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount $7 Depreciation Expense $14 Patent amortization expense $1 Loss on machine damage $25 Changes in operating assets and liabilities: Decrease in accounts receivable $14 Increase in Investment Revenue Receivables -$1 Increase in investment due to equity method income -$15 Increase in Inventory -$6 Decrease in Prepaid insurance $9 Decrease Accounts payable -$25 Decrease Salaries payable -$15 Increase Bond interest payable $3 Decrease Income tax payable -$6 Increase Deferred income tax liability $13 $18 Net cash flows from operating activities $119 Cash flows from investing activities: Sale of machine components $20 Purchase of long-term investment -$35 Purchase of land -$28 Net cash flows from investing activities -$43 Cash flows from financing activities: Retirement of bonds payable -$70 Sale of preferred stock $88 Payment of cash dividends -$24 Purchase of treasury stock -$19 Annual Lease Payment -$6 Net cash flows from financing activities -$31 Net increase in cash $45 Cash balance, January 1 $91 Cash balance, December 31 $136 Working Notes :- 2016 2015 Difference Assets Cash $136 $91 $45 Accounts receivable $200 $214 -$14 Investment revenue receivable $15 $14 $1 Inventory $216 $210 $6 Prepaid insurance $13 $22 -$9 Long-term investment $185 $135 $50 Land $216 $160 $56 Buildings and equipment $428 $420 $8 Less: Accumulated depreciation -$109 -$140 $31 Patent $44 $45 -$1 $1,344 $1,171 Liabilities Accounts payable $60 $85 -$25 Salaries payable $15 $30 -$15 Bond interest payable $17 $14 $3 Income tax payable $22 $28 -$6 Deferred income tax liability $31 $18 $13 Notes payable $28 $0 $28 Lease liability $92 $0 $92 Bonds payable $225 $295 -$70 Less: Discount on bonds -$32 -$39 $7 Shareholders’ Equity $0 $0 Common stock $460 $420 $40 Paid-in capital—excess of par $115 $95 $20 Preferred stock $88 $0 $88 Retained earnings $242 $225 $17 Less: Treasury stock -$19 $0 -$19 $1,344 $1,171 Payment of Dividend Beginning RE $225 Add: NI $101 Less: Common stock purchased + Paid in capital = 36+ 15 -60 Ending RE -242 Payment of Dividend $24