Question

The comparative balance sheets for 2021 and 2020 are given below for Surmise Company. Net income for 2021 was $88 million.
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 sign.)


Please see attachment for comparative balance sheets

Answer 1

It can be deduced that the cash flow shows that the net cash provided by operating activities will be $58 million.

How to compute the statement of cash flow

Cash flow from operating activities

Net income = $54 million

Add: Depreciation $15 million.

Add: Bad debt = $6 million

Add: Amortization expense = $3

Changes in operating assets and liabilities

Decrease in account receivable = $4 million

Increase in inventory = ($9 million)

Increase in prepaid expense = ($2 million)

Decrease in account payable = ($10 million)

Decrease in accrued liability = ($3 million)

Net cash provided by operating activities = $58 million

In conclusion, the net cash provided by operating activities is $58 million.

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