Question

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

NATIONAL INTERCABLE COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	2018				2017
Assets
Cash	$	106			$	95
Accounts receivable		280				275
Less: Allowance for uncollectible accounts		(8	)			(6	)
Prepaid insurance		4				10
Inventory		262				255
Long-term investment		50				75
Land		180				180
Buildings and equipment		322				280
Less: Accumulated depreciation		(118	)			(85	)
Trademark		29				30
	$	1,107			$	1,109
Liabilities
Accounts payable	$	38			$	54
Salaries payable		4				5
Deferred income tax liability		20				17
Lease liability		79				0
Bonds payable		115				285
Less: Discount on bonds		(25	)			(28	)
Shareholders' Equity
Common stock		290				270
Paid-in capital—excess of par		110				90
Preferred stock		50				0
Retained earnings		426				416
	$	1,107			$	1,109

NATIONAL INTERCABLE COMPANY Income Statement For Year Ended December 31, 2018 ($ in millions)
Revenues
Sales revenue	$	420
Investment revenue		16
Gain on sale of investments		4		$	440
Expenses
Cost of goods sold		170
Salaries expense		62
Depreciation expense		45
Trademark amortization expense		1
Bad debt expense		7
Insurance expense		24
Bond interest expense		40
Loss on building fire		32			381
Income before tax					59
Income tax expense					27
Net income				$	32
Additional information from the accounting records: Investment revenue includes National Intercable Company's $9 million share of the net income of Central Fiber Optics Corporation, an equity method investee. A long-term investment in bonds, originally purchased for $34 million, was sold for $38 million. Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million. A building that originally cost $48 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $4 million. The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $90 million. Annual lease payments of $11 million are paid at Jan. 1 of each year starting in 2018. $170 million of bonds were retired at maturity. $20 million par value of common stock was sold for $40 million, and $50 million of preferred stock was sold at par. Shareholders were paid cash dividends of $22 million. Required: 2. Prepare the statement of cash flows. Present cash flows from operating activities by the direct method. (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

	Working
	Cash received from customers
	Sales	$                          420.00
	Less: Increase in Accounts receivable	$                             -5.00
	Less:Allowance for bad debt=(6+7-8)	$                             -5.00
	Cash received from customers	$                          410.00
	Cost of goods sold	$                          170.00
	Add:Increase in Inventory	$                               7.00
	Purchases	$                          177.00
	Add: Decrease in Accounts Payable	$                             16.00
	Cash paid for inventory	$                          193.00
	Wages Expense	$                             62.00
	Add: Decrease in wages Payable	$                               1.00
	Cash paid for wages	$                             63.00
	Insurance Expense	$                             24.00
	Less: decrease in Prepaid Expenses	$                             -6.00
	Cash Paid for Insurance	$                             18.00
	Bonds Expense	$                             40.00
	Less: Decrease in Bonds discount	$                             -3.00
	Cash Paid for Bonds expense	$                             37.00
	Income Tax expense	$                             27.00
	Less :Increase in income tax payable	$                               3.00
	Cash paid for income taxes	$                             24.00
	National Intercable Company
	Statement of Cash Flow(Direct Method)
	For the year ended december 31,2018
		(amount in million)
	Cash Flow from operating activities
	Cash Received from customers	$                          410.00
	Investment Revenue($16-$9)	$                               7.00
	Cash paid to customers	$                        (193.00)
	Cash paid for Wages	$                          (63.00)
	Cash paid for insurance	$                          (18.00)
	Cash paid for Bonds	$                          (37.00)
	Cash paid for Income Taxes	$                          (24.00)
	Net Cash from operating activity	$                             82.00
	Cash Flow from investing activities
	Sale of Investment	$                             38.00
	Sale of building parts	$                               4.00
	Net cash used by investing activities	$                             42.00
	Cash flow from financing activities
	Cash payment of lease liability	$                          (11.00)
	Cash received from issue of common stock	$                             40.00
	Reirement of Bonds payable	$                        (170.00)
	Cash received from issue of Preferred stock	$                             50.00
	Dividend Paid(point h)	$                          (22.00)
	Net cash used by financing activities	$                        (113.00)
	Net increase in cash	$                             11.00
	Cash January 1,2018	$                             95.00
	Cash December 31st 2018	$                          106.00
	Investment
	Particular	Debit	Particualr	Credit
	Balance	$                             75.00	By Bank	$                      38.00
	Net Income of Centre Fibre optics	9
	Gain on sale of Investment	$                               4.00	By Balance C/d	$                      50.00
		$                             88.00		$                      88.00