Simple 11:12 AM ezto.mheducation.com graded HW Question 4 (of 7 10.00 points The

Question

Simple 11:12 AM ezto.mheducation.com graded HW Question 4 (of 7 10.00 points 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 S 152 S 99 230 Accounts receivable Investment revenue receivable 208 26 218 Prepaid insurance 212 Buildings and equipment (115) (156) Patent $1,462 $1,244 $ 68 S 101 Accounts payable Salaries payable Bond interest payable Income tax payable Deferred income tax liability Notes payable Lease liability Bonds payable 26 28 26 47 41 100 311 (44) Less: Discount on bonds Shareholders Equity Common stock Paid-in capital-excess of par Preferred stock Retained earnings (40) 113 93 Less: Treasury stock $1,462 $1,244

Explanation / Answer

ARDUOUS COMPANY Statement of Cash Flows For year ended December 31, 2016 ($ in millions) Cash flows from operating activities: Net Income $153 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount $4 Depreciation Expense $12 Patent amortization expense $4 Loss on machine damage $35 Changes in operating assets and liabilities: Decrease in accounts receivable $22 Increase in Investment Revenue Receivables -$4 Increase in investment due to equity method income -$26 Increase in Inventory -$8 Decrease in Prepaid insurance $7 Decrease Accounts payable -$33 Decrease Salaries payable -$10 Increase Bond interest payable $6 Decrease Income tax payable -$6 Increase Deferred income tax liability $21 $24 Net cash flows from operating activities $177 Cash flows from investing activities: Sale of machine components $18 Purchase of long-term investment -$43 Purchase of land -$41 Net cash flows from investing activities -$66 Cash flows from financing activities: Retirement of bonds payable -$78 Sale of preferred stock $93 Payment of cash dividends -$46 Purchase of treasury stock -$27 Net cash flows from financing activities -$58 Net increase in cash $53 Cash balance, January 1 $99 Cash balance, December 31 $152 Working Notes :- 2016 2015 Difference Assets Cash $152 $99 $53 Accounts receivable $208 $230 -$22 Investment revenue receivable $26 $22 $4 Inventory $226 $218 $8 Prepaid insurance $24 $31 -$7 Long-term investment $212 $143 $69 Land $250 $168 $82 Buildings and equipment $430 $436 -$6 Less: Accumulated depreciation -$115 -$156 $41 Patent $49 $53 -$4 $1,462 $1,244 Liabilities Accounts payable $68 $101 -$33 Salaries payable $26 $36 -$10 Bond interest payable $28 $22 $6 Income tax payable $30 $36 -$6 Deferred income tax liability $47 $26 $21 Notes payable $41 $0 $41 Lease liability $100 $0 $100 Bonds payable $233 $311 -$78 Less: Discount on bonds -$40 -$44 $4 Shareholders’ Equity $0 $0 Common stock $448 $428 $20 Paid-in capital—excess of par $113 $103 $10 Preferred stock $93 $0 $93 Retained earnings $302 $225 $77 Less: Treasury stock -$27 $0 -$27 $1,462 $1,244 Payment of Dividend Beginning RE $225 Add: NI $153 Less: Common stock purchased + Paid in capital = 36+ 15 -30 Ending RE -302 Payment of Dividend $46

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