A comparative balance sheet and income statement for Eaton Company follow: Durin

Question

A comparative balance sheet and income statement for Eaton Company follow:

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Using the direct method, adjust the company’s income statement for 2011 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Cash outflows and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Eaton Company
Comparative Balance Sheet
December 31, 2011 and 2010 2011 2010 Assets Cash $ 4 $ 11 Accounts receivable 310 230 Inventory 160 195 Prepaid expenses 8 6 Total current assets 482 442 Property, plant, and equipment 500 420 Less accumulated depreciation 85 70 Net property, plant, and equipment 415 350 Long-term investments 31 38 Total assets $ 928 $ 830 Liabilities and Stockholders' Equity Accounts payable $ 300 $ 225 Accrued liabilities 70 80 Income taxes payable 71 63 Total current liabilities 441 368 Bonds payable 195 170 Total liabilities 636 538 Common stock 160 200 Retained earnings 132 92 Total stockholders’ equity 292 292 Total liabilities and stockholders' equity $ 928 $ 830

Explanation / Answer

Use this template, it always helps me to remember what to add and subtract.

INDIRECT METHOD FOR CASH FLOWS
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income
+ Depreciation, Amortization or Depletion
+ Non-operating Losses
- Non-operating Gains
+ any increases in Current Liabilities
+ any decreases in Current Assets (except cash)
- any decreases in Current Liabilities
- any increases in Current Assets (except cash)
= Cash Flow from Operating Activities

CASH FLOW FROM INVESTING ACTIVITIES:
+ sell Long-term assets
- buy (construct) Long-term assets
= Cash Flow from Investing Activities

CASH FLOW FROM FINANCING ACTIVITIES:
+ Stock issued for cash
+ Cash borrowed with loans and bonds
- Treasury stock repurchased for cash
- Cash used to repay loans and bonds
- Cash dividends paid
=Cash Flow from Financing Activities

Total Cash Flow (Operating, Investing, Financing)
+ Beginning Cash
= Ending Cash

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