Question

Based on the following information, prepare only the operating portion of a Statement of Cash Flows for Burgess Company.

Burgess Company’s Income Statement for Year 2 (dollars in Millions) is as follows:

Sales                                                      $3,600

Cost of Goods Sold                            2,550

Gross Margin                                     1,050

Selling & Admin                                     875

Net Operating Income                       175

Nonoperating Items                      

Gain on Sale of Equipment                 3

Income Before Taxes                          178

Income Taxes                                           63

Net Income                                             115

It’s Balance Sheet for the end of Year 1 and 2 are as follows:

  Year 1                    Year 2  

Assets

Cash and cash equivalents $     49                   $     79

Accounts Receivable 645                        580

Inventory        660                        615

Total current assets     1,345                     1,274

Property, Plant, & Equip 1,515                   1,466

    Less Accumulated Depr        765                        641

Net Property, Plant, & Equip        750                        825

Total Assets   $2,104                   $2,099

Liabilities and Stockholders’ Equity          

Current Liabilities

Accounts Payable $   250                   $   155

Accrued Liabilities 190                        165

Income Taxes Payable          76                           70

Total current liabilities 516                        390

Bonds Payable        450                        620

Total Liabilities        966                     1,010

Stockholders’ Equity

Common Stock 161                        161

Retained Earnings        977                        928

Total Stockholders’ Equity     1,138                     1,089

Total Liab and Stockholders’ Equity   $2,104                   $2,099

The company sold equipment that had an original cost of $13M and accumulated depreciation of $8M. The gain on the sale was $3M.

Answer 1

Solution

BURGESS COMPANY
Cash Flow Statement
(Dollars in Million)
A. Cash Flows from Operating Activity
Net Income		$         115.00
Adjustments
Depreciation expense	$          132.00
Increase in Accounts receivables	$          (65.00)
Gain on sale of Equipment	$            (3.00)
Increase in Inventories	$          (45.00)
Increase in income tax payable	$              6.00
Increase in Accounts Payable	$            95.00
Increase In accrued Liabilities	$            25.00
		$         145.00
Net cash flow from Operating activities		$         260.00

WorkingGeneral notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.