The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for

Asked by bizgrad
Dated: 4th Dec'17 09:18 PM
Bounty offered: $30.00

Problem 1

The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $68 million.

SURMISE COMPANY
Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)

2018

2017

Assets

Cash

$

51

$

56

Accounts receivable

83

94

Less: Allowance for uncollectible accounts

(20

)

(6

)

Prepaid expenses

15

10

Inventory

126

110

Long-term investment

98

65

Land

86

86

Buildings and equipment

353

240

Less: Accumulated depreciation

(119

)

(96

)

Patent

19

20

$

692

$

579

Liabilities

Accounts payable

$

12

$

29

Accrued liabilities

1

14

Notes payable

36

0

Lease liability

104

0

Bonds payable

58

114

Shareholders’ Equity

Common stock

63

50

Paid-in capital—excess of par

257

205

Retained earnings

161

167

$

692

$

579



Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2018. 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 $9 million are paid at January 1 of each year starting in 2018.) (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 sign.)


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Problem 2

Portions of the financial statements for Hawkeye Company are provided below.

HAWKEYE COMPANY
Income Statement
For the Year Ended December 31, 2018

Sales

$

870

Cost of goods sold

335

Gross margin

535

Operating expenses:

Salaries

$

229

Depreciation

187

Loss on sale of land

10

Total operating expenses

426

Operating income

109

Other income (expense):

Gain on sale of cash equivalents

4

Interest expense

(37

)

Income before tax

76

Income tax expense

38

Net income

$

38


HAWKEYE COMPANY
Selected Accounts from Comparative Balance Sheets
December 31, 2018 and 2017

Year

2018

2017

Change

Cash

$

238

$

213

$

25

Accounts receivable

392

415

(23

)

Inventory

886

863

23

Accounts payable

223

260

(37

)

Salaries payable

183

194

(11

)

Interest payable

61

53

8

Income taxes payable

93

110

(17

)



Required:
1. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the indirect method.




Problem 3

the income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in thousands) for Peach Computers.

PEACH COMPUTERS
Income Statement
For the Year Ended December 31, 2018

Sales

$

305

Cost of goods sold

(185

)

Gross margin

120

Salaries expense

$

41

Insurance expense

19

Depreciation expense

11

Loss on sale of land

5

76

Income before tax

44

Income tax expense

(22

)

Net income

$

22


Reconciliation of Net Income
To Net Cash Flows from Operating Activities

Net income

$

22

Adjustments for Noncash Effects

Depreciation expense

11

Loss on sale of land

5

Changes in operating assets and liabilities:

Decrease in accounts receivable

6

Increase in inventory

(13

)

Decrease in accounts payable

(8

)

Increase in salaries payable

5

Decrease in prepaid insurance

9

Increase in income tax payable

20

Net cash flows from operating activities

$

57



Required:
1. Calculate each of the following amounts for Peach Computers
2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).


The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for
Answered by bizgrad
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Dated: 4th Dec'17 09:18 PM
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attachments

solution--Peach-Computers.docx (36.29 KB)
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for      Prepare   cash flows     activities       statement   cash flows      Solution:1       from   during the     received       Sales   Decrease in     +       paid   supplier of     the       to   Cost
solution-1,2.xlsx (20.64 KB)
Preview of solution-1,2.xlsx
activities:     note   Retirement of     Sale       Payment   cash dividendsNet     from       increase   cashCash balance,     balance,       and   activities:Acquired buildings     leaseSurmise       Statement   Cash FlowsDec     SheetAssets: