Question

A comparative balance sheet and an income statement for Burgess Company are given below:

Burgess Company Comparative Balance Sheet (dollars in millions)
	Ending Balance		Beginning Balance
Assets
Current assets:
Cash and cash equivalents	$	48	$	99
Accounts receivable		730		669
Inventory		695		646
Total current assets		1,473		1,414
Property, plant, and equipment		1,595		1,565
Less accumulated depreciation		824		678
Net property,plant, and equipment		771		887
Total assets	$	2,244	$	2,301
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	278	$	169
Accrued liabilities		189		161
Income taxes payable		95		81
Total current liabilities		562		411
Bonds payable		460		690
Total liabilities		1,022		1,101
Stockholders' equity:
Common stock		190		190
Retained earnings		1,032		1,010
Total stockholders' equity		1,222		1,200
Total liabilities and stockholders' equity	$	2,244	$	2,301

Burgess Company Income Statement (dollars in millions)
Sales	$	3,970
Cost of goods sold		2,720
Gross margin		1,250
Selling and administrative expenses		898
Net operating income		352
Nonoperating items: Gain on sale of equipment		2
Income before taxes		354
Income taxes		130
Net income	$	224

Burgess also provided the following information:

1.	The company sold equipment that had an original cost of $30 million and accumulated depreciation of $16 million. The cash proceeds from the sale were $16 million. The gain on the sale was $2 million.
2.	The company did not issue any new bonds during the year.
3.	The company paid a cash dividend during the year.
4.	The company did not complete any common stock transactions during the year.

Required:
1.	Using the indirect method, prepare a statement of cash flows for the year. (Enter your answers in millions not in dollars . List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Using the indirect method, prepare a statement of cash flows for the year.

Cash flow from operating activities
Net Income	224
Adjustment to reconcile net income
Depreciation	162
Gain on sale of equipment	(2)
Increase account receivable	(61)
Increase inventory	(49)
Increase account payable	109
Increase accured liabilties	28
Increase income tax payable	14
Net cash flow from operating activities		425
Cash flow from investing activities
Sale of equipment	16
Purchase of Property, plant, and equipment	(60)
Net cash flow from investing activities		(44)
Cash flow from financing activities
Dividend paid	(202)
Bonds repaid	(230)
Net cash flow from financing activities		(432)
Net cash flow		(51)
Beginning cash		99
Ending cash		48