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 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.).)

TREASURY BILLS ARE IN THE QUESTION SEE ABOVE

Answer 1

Statement of cash flow
Cash flows from operating activities
Net income		67.00
Adjustment to reconcile net income to cash basis
Investment revenue (11-6)	-5
Depreciation expenses	12
Patent Amortization	2
Loss on Building fire	18
Decrease in Accounts Receivable	4
Increase in revenue receivable	-2
Increase in mercandise inventory	-5
Decraese in prepaid expenses	4.00
Decrease in Accounts payable	(15.00)
Decraese in salaries payable	(5.00)
Increase in Deferred tax liab ility	3.00
Increase in Bonds interest payable	4.00
Decraese in Income tax payable	(2.00)
Decrease in Bonds discount	3.00
		16.00
Net cash from operating activities		83.00
Cash flows from investing activities
Purchase of long tern investment	-25
Purchase of land	-23
Sale of MACHINE Copmponents	17	-31
Net cash used investing activities		(31.00)
Cash flows from financing activities
Borrowings from Bonds Payable
Retirement of Bonds Payable	(60.00)
Issue of Preferred stock	75.00
Payment of lease	-7
Purchase of treasury stock	-9
		(1.00)
Net cash used financing activitie		(1.00)
Net Increase in cash and cash equivalents		28.00
Cash and cash equivalents at beginning of period		81.00
Ending Balance		109.00