Question

Problem 21-14 (Algo) Statement of cash flows; Indirect method; Ilmited Information [LO21-4, 21-8] The comparative balance sheets for 2021 and 2020 are given below for Surmise Company. Net income for 2021 was $80 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions) 2021 2e2e $ 58 106 Assets Cash Accounts receivable Less: Allowance for uncollectible accounts Prepaid expenses Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Patent $ 55 89 (24) 19 132 89 98 400 (137) 25 $ 746 16 110 50 98 270 (108) 26 $ 622 $ $ 42 2e Liabilities Accounts payable Accrued liabilities Notes payable Lease liability Bonds payable Shareholders' Equity Common stock Paid-in capital-excess of par Retained earnings 19 4 48 122 64 132 50 205 69 261 159 $ 746 173 $ 622 Required: Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2021. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Hint: The right to use a building was acquired with a seven-year lease agreement. Annual lease payments of $8 million are paid at January 1 of each year starting in 2021.) (Enter your answers in millions (I.e., 10,000,000 should be entered as 10). Amounts to be deducted should be Indicated with a minus slgn.)

Answer 1

Solution:

SURMISE COMPANY Statement of Cash Flows $ 80 29 20 1 130 For the year ended December 31, 2021 ($ in millions) Cash flows from Operating Activities: Net Income Adjustments for noncash effects: Depreciation expense $ Bad debt expense ($24 - $4) $ Amortization expense $ $ Changes in operating assets and liabilities: Decrease in accounts receivable $ Increase in inventory $ Decrease in accounts payable $ Increase in prepaid expenses $ Decrease in accrued liabilities $ $ Net cash flows from operating activities Cash flows from Investing Activities: Purchase of Long-term Investment $ 17 -22 $ -23 -3 -16 -47 $ 83 -39 $ -39 -8 Net cash flows from investing activities Cash flows from Financing Activities: Payment of lease liability Issuance of notes payable Retirement of bonds payable Sale of common stock ($69 - $50) + ($261 - $205) Payment of dividends ($173 + $80 - $159) 48 $ $ $ $ $ -68 75 -94 -47 -3 Net cash flows from financing activities Net increase (decrease) in cash Cash balance, January 1 Cash balance, December 31 Noncash investing and financing activities: Acquired use of building by lease $ $ $ $ 58 55 $ 130