Question

Problem 21-18 Statement of cash flows; indirect method [LO21-4, 21-8]

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	$	146			$	96
Accounts receivable		205				224
Investment revenue receivable		23				19
Inventory		222				215
Prepaid insurance		21				28
Long-term investment		203				140
Land		226				165
Buildings and equipment		435				430
Less: Accumulated depreciation		(109	)			(150	)
Patent		42				47
	$	1,414			$	1,214
Liabilities
Accounts payable	$	65			$	95
Salaries payable		23				33
Bond interest payable		25				19
Income tax payable		27				32
Deferred income tax liability		41				23
Notes payable		30				0
Lease liability		97				0
Bonds payable		230				305
Less: Discount on bonds		(37	)			(46	)
Shareholders’ Equity
Common stock		475				425
Paid-in capital—excess of par		125				100
Preferred stock		93				0
Retained earnings		244				228
Less: Treasury stock		(24	)			0
	$	1,414			$	1,214

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2018 ($ in millions)
Revenues and gain:
Sales revenue	$	557
Investment revenue		28
Gain on sale of treasury bills		4		$	589
Expenses and loss:
Cost of goods sold		195
Salaries expense		88
Depreciation expense		9
Patent amortization expense		4
Insurance expense		22
Bond interest expense		43
Loss on machine damage		30
Income tax expense		51			442
Net income				$	147

Additional information from the accounting records:

1. Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.
2. Treasury bills were sold during 2018 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
3. A machine originally costing $100 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.
4. Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $18 million.
5. The preferred stock of Tory Corporation was purchased for $40 million as a long-term investment.
6. Land costing $61 million was acquired by issuing $31 million cash and a 14%, four-year, $30 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, $97 million. Annual lease payments of $8 million are paid at the beginning of each year starting January 1, 2018.
8. $75 million of bonds were retired at maturity.
9. In February, Arduous issued a stock dividend (10.0 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
10. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $24 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.).)

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.