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	$	67		$	137
Accounts receivable		920			840
Inventory		790			722
Total current assets		1,777			1,699
Property, plant, and equipment		1,785			1,736
Less accumulated depreciation		938			735
Net property,plant, and equipment		847			1,001
Total assets	$	2,624		$	2,700
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	316		$	188
Accrued liabilities		208			142
Income taxes payable		133			100
Total current liabilities		657			430
Bonds payable		555			880
Total liabilities		1,212			1,310
Stockholders' equity:
Common stock		285			285
Retained earnings		1,127			1,105
Total stockholders' equity		1,412			1,390
Total liabilities and stockholders' equity	$	2,624		$	2,700

Burgess Company Income Statement (dollars in millions)
Sales	$	4,540
Cost of goods sold		3,100
Gross margin		1,440
Selling and administrative expenses		936
Net operating income		504
Nonoperating items:
Gain on sale of equipment		2
Income before taxes		506
Income taxes		168
Net income	$	338

Burgess also provided the following information:

The company sold equipment that had an original cost of $68 million and accumulated depreciation of $35 million. The cash proceeds from the sale were $35 million. The gain on the sale was $2 million.

The company did not issue any new bonds during the year.

The company paid a cash dividend during the year.

The company did not complete any common stock transactions during the year.

Required:

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

Statement of cash flow :

Cash flow from operating activities
net income		338
Adjustment to reconcile net income to net cash from operating activities
Depreciation expense	238
Gain on sale of equipment	-2
Increase account receivable	-80
Increase inventory	-68
Increase account payable	128
Increae accured liabilties	66
Increase income tax payable	33
		315
Net cash flow from operating activities		653
Cash flow from investing activities
Sale of equipment	35
Purchase of equipment	-117
Net cash used in investing activities		-82
Cash flow from financing activities
repaid bonds payable	-325
Dividend paid	-316
Net cash used in financing activities		-641
Net cash increase (decrease)		-70
Beginning cash		137
Ending cash		67