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	$	46		$	95
Accounts receivable		710			651
Inventory		685			638
Total current assets		1,441			1,384
Property, plant, and equipment		1,575			1,547
Less accumulated depreciation		812			672
Net property, plant, and equipment		763			875
Total assets	$	2,204		$	2,259
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	274		$	167
Accrued liabilities		187			163
Income taxes payable		91			79
Total current liabilities		552			409
Bonds payable		450			670
Total liabilities		1,002			1,079
Stockholders' equity:
Common stock		180			180
Retained earnings		1,022			1,000
Total stockholders' equity		1,202			1,180
Total liabilities and stockholders' equity	$	2,204		$	2,259

Burgess Company Income Statement (dollars in millions)
Sales	$	3,910
Cost of goods sold		2,680
Gross margin		1,230
Selling and administrative expenses		894
Net operating income		336
Nonoperating items:
Gain on sale of equipment		2
Income before taxes		338
Income taxes		126
Net income	$	212

Burgess also provided the following information:

The company sold equipment that had an original cost of $26 million and accumulated depreciation of $14 million. The cash proceeds from the sale were $14 million. The gain on the sale was $2 million.

1. The company did not issue any new bonds during the year.
2. The company paid a cash dividend during the year.
3. 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

Burgess Company
Cash Flow Statement
Cash Flow from Operating Activities	Amount
	(in Million)
Net Income	$                  212
Add: Depreciation	$                  154
Less: Gain on sale of equipment	$                     -2
Add: Income taxes	$                  126
Increase in accounts receivable	$                   -59
Increase in inventory	$                   -47
Increase in accounts payable	$                  107
Increase in accrued liabilies	$                    24
	$                  515
Income taxes paid	$                -114
Cash Flow from Operating Activities	$                  401
Cash flow from Investing Activities
Sales of equipment	$                    14
Purchase of asset	$                   -54
Net cash used in investing activities	$                   -40
Cash flow from Financing Activities
Redemption of bonds	$                -220
Dividends paid	$                -190
Net cash used in financing activities	$                -410
Net change in cash	$                   -49
Opening balance	$                    95
Ending balance	$                    46