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 $ 49 $ 79
Accounts receivable 645 580
Inventory 660 615
Total current assets 1,354 1,274
Property, plant, and equipment 1,515 1,466
Less accumulated depreciation 765 641
Net property,plant, and equipment 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 liabilities and stockholders' equity $ 2,104 $ 2,099
Burgess Company
Income Statement
(dollars in millions)
Sales $ 3,600
Cost of goods sold 2,550
Gross margin 1,050
Selling and administrative expenses 875
Net operating income 175
Nonoperating items: Gain on sale of equipment 3
Income before taxes 178
Income taxes 63
Net income $ 115
Burgess also provided the following information:

1.
The company sold equipment that had an original cost of $13 million and accumulated depreciation of $8 million. The cash proceeds from the sale were $8 million. The gain on the sale was $3 million.

2. The company did not issue any new bonds during the year.
3. The company paid a cash dividend during the year.
4. The company did not complete any common stock transactions during the year.


Required:
1.
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

Answer:

Burgess Company statement of cashflows shows a Net decrease in Cash & Cash Equivalents of $30 Million and Closing Cash & Cash Equivalents of $49 Million. Complete solution using indirect method is presented below and also attached in Excel format.

*Please note that all figures are 'dollars in millions' and figures in brackets represent negative figures

Explanation:

                                                    Burgess Company

                                               Statement of Cash flows  

 

Net Profit before tax                                                       $178  

Adjustment of Non Cash Expenses:  

Depreciation (Working 1)                                               $132  

Gain on Sale of Equipment                                               $(3)

Increase in Accrued Liabilities                                       $25  

 

Working Capital Changes:  

Increase in Inventory                                                        $(45)

Increase in Accounts Receivables                               $(65)

Increase in Accounts Payables                                        $95  

 

Cash generated from Operations                                $317  

Tax Paid (Working 2)                                                          $(57)  

Net cash from operating activities                                $260  

 

Cash flows from Investing Activities  

Purchase of Property, Plant & Equipment Working 3)     $(62)

Proceeds from Sale of Equipment                               $8  

 

Net cash from investing activities                                $(54)

 

Cash flow from Financing Activities  

Repayment of Bonds Payable                                       $(170)

Dividends paid (Working 4)                                                 $(66)

 

Net cash from Financing Activities                                $(236)

 

Net decrease in cash and cash equivalents                $(30)

Opening cash and cash equivalents                               $79  

Closing cash and cash equivalents                                $49  

Workings

Working 1

Opening Accumulated Depreciation                                         $641  

Add: Depreciation Charge for the year (Balancing Figure)  $132  

Less: Depreciation of Equipment Sold                                  $(8)

Closing Accumulated Depreciation                                          $765  

 

Working 2

Opening Tax Payables                                                                  $70  

Add: Tax Payable charged to Income Statement                  $63  

Less: Cash Payment (Balancing Figure)                                   $(57)

Closing Tax Payable                                                                  $76  

 

Working 3

Opening Property, Plant & Equipment                                          $1,466  

Add: Purchases during the year (Balancing Figure)           $62  

Less: Sold during the year                                                          $(13)

Closing Property, Plant & Equipment                                          $1,515  

 

Working 4  

Opening Retained Earnings                                                          $928  

Add: Net Income for the Year                                                  $115  

Less: Dividends Paid During the year (Balancing Figure)   $(66)

Closing Retained Earnings                                                          $977  

Answer 2

Answer: The net increase in cash $ Cash equivalents is $13million

Explanation:

Cash flow statement for the year ended.

$M

Operating Activities

Net income. 115,000

Depreciation 765,000

Account Receivable 645,000

-----------------

Total cash generated. 1,525,000

Cash from investing Activities

Property, plant &Equipment (1,515,000)

Proceed on sale of equipment 3

Net cash used in investing Activities. (1,512,000)

-----------------

Net increase in cash & cash equivalent. 13,000,000

Cash & cash equivalent at beginning of period. 49,000,000

Cash & cash equivalent at end of period. 79,000,000