Question

The comparative balance sheets for 2016 and 2015 and the income statement for 2016 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions)
	2016		2015
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		241		165
Buildings and equipment		427		430
Less: Accumulated depreciation		(109)		(150)
Patent		43		47
	$	1,422	$	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		38		0
Lease liability		97		0
Bonds payable		230		305
Less: Discount on bonds		(37)		(46)
Shareholders’ Equity
Common stock		455		425
Paid-in capital—excess of par		115		100
Preferred stock		90		0
Retained earnings		277		228
Less: Treasury stock		(24)		0
	$	1,422	$	1,214

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2016 ($ 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:
a.	Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.
b.	Treasury bills were sold during 2016 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
c.	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.
d.	Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $18 million.
e.	The preferred stock of Tory Corporation was purchased for $40 million as a long-term investment.
f.	Land costing $76 million was acquired by issuing $38 million cash and a 14%, four-year, $38 million note payable to the seller.
g.	The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $97 million.
h.	$75 million of bonds were retired at maturity.
i.	In February, Arduous issued a stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
j.	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

Cash Flow Statement :	Amount $
Cash from the Operating Activities:
Net Income	147
less: Gain on sale of treasury bills	-4
add: Depreciation	9
add:Patent amortization	4
add: loss on machine damage	30
add:AR reduced	19
less:IR rece. Increases	-4
Less: Invent. Increases	-7
add: Prep Ins reduced	7
less:AP reduced	-30
less: Salari pay reduced	-10
add:BI pay increases	6
less: IT payable	-5
add:DIT Liabi	18
Cash inflow from operating activities	180
Cash from Investing Activities:
Less:LT Invest increases	-63
less:land purchase	-76
add: Buildig lease raised	97
less: buildg purchase	-97
add: Machine sale	20
add: sales of investment	4
Cash outflow from investment activity	-115
Cash from Financing activities:
add:NP issued	38
Les:Bonds retired	-75
Less:Treasury stock purchased	-24
add:Bond discount reduced	9
add: CS issued	15	(30+15-30)
add:Pref stock issued	90
less: dividend paid	-68
Cash inflow from financing activities	-15
Net cash inflow from all activities	50
Add: Opening cash	96
Closing Cash	146