The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $70 million.
SURMISE COMPANY
Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)
2018 2017
Assets
Cash $ 26 $ 32
Accounts receivable 84 96
Less: Allowance for uncollectible accounts (19) (4)
Prepaid expenses 14 11
Inventory 132 115
Long-term investment 104 70
Land 88 88
Buildings and equipment 359 245
Less: Accumulated depreciation (122 ) (98 )
Patent 20 22
$ 686 $ 577
Liabilities
Accounts payable $ 14 $ 32
Accrued liabilities 3 15
Notes payable 38 0
Lease liability 107 0
Bonds payable 59 117
Shareholdersâ Equity
Common stock 64 50
Paid-in capitalâexcess of par 259 205
Retained earnings 142 158
$ 686 $ 577
Required:
1. 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 $7 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.)