The comparative balance sheets for 2021 and 2020 are given below for Surmise Company. Net income for 2021 was $58 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions) 2021 2020 Assets Cash $ 90 $ 98 Accounts receivable 78 84 Less: Allowance for uncollectible accounts (15 ) (6 ) Prepaid expenses 10 5 Inventory 121 110 Long-term investment 63 35 Land 76 76 Buildings and equipment 311 215 Less: Accumulated depreciation (103 ) (86 ) Patent 13 15 $ 644 $ 546 Liabilities Accounts payable $ 7 $ 19 Accrued liabilities 2 8 Notes payable 26 0 Lease liability 89 0 Bonds payable 53 99 Shareholders’ Equity Common stock 58 50 Paid-in capital—excess of par 247 205 Retained earnings 162 165 $ 644 $ 546 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 $7 million are paid at January 1 of each year starting in 2021.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The comparative balance sheets for 2021 and 2020 are given below for Surmise Company. Net income for 2021 was $58 million.

SURMISE COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions)
	2021		2020
Assets
Cash	$	90		$	98
Accounts receivable		78			84
Less: Allowance for uncollectible accounts		(15	)		(6	)
Prepaid expenses		10			5
Inventory		121			110
Long-term investment		63			35
Land		76			76
Buildings and equipment		311			215
Less: Accumulated depreciation		(103	)		(86	)
Patent		13			15
	$	644		$	546
Liabilities
Accounts payable	$	7		$	19
Accrued liabilities		2			8
Notes payable		26			0
Lease liability		89			0
Bonds payable		53			99
Shareholders’ Equity
Common stock		58			50
Paid-in capital—excess of par		247			205
Retained earnings		162			165
	$	644		$	546

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 $7 million are paid at January 1 of each year starting in 2021.)

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