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Question(s) / Instruction(s):

A comparative balance sheet and income statement for Eaton Company follow:

Eaton Company

Comparative Balance Sheet

December 31, 2011 and 2010

                                                                                                2011                       2010

  Assets                                                 

  Cash                                                                                    $4                           $11   

  Accounts receivable                                                    310                         230   

  Inventory                                                                         160                         195   

  Prepaid expenses                                                         8                              6   

   Total current assets                                                    482                         442   

   Property, plant, and equipment                            500                         420   

      Less accumulated depreciation                           85                           70   

   Net property, plant, and equipment                   415                         350   

  Long-term investments                                             31                           38   

  Total assets                                                                      $928                       $830   

  Liabilities and Stockholders' Equity                                                         

  Accounts payable                                                          $300                       $225   

  Accrued liabilities                                                          70                           80   

  Income taxes payable                                                 71                           63   

   Total current liabilities                                                441                         368   

  Bonds payable                                                                               195                         170   

  Total liabilities                                                                 636                         538   

   Common stock                                                              160                         200   

  Retained earnings                                                        132                         92   

   Total stockholders’ equity                                        292                         292   

   Total liabilities and stockholders' equity              $928                       $830   

 

Eaton Company

Income Statement

For the Year Ended December 31, 2011

  Sales                                                                                   $750 

  Cost of goods sold                                                        450                          

  Gross margin                                                                                  300 

  Selling and administrative expenses                                      223 

                                                  Net operating income                                                 77 

  Nonoperating items:                                                    

      Gain on sale of investments                                                  $5                            

      Loss on sale of equipment                                                    (2)                          3 

  Income before taxes                                                                                                   80 

  Income taxes                                                                                                                  24            

  Net income                                                                                                                     $56 

     During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Required:

1.            Using the indirect method, determine the net cash for operating activities for 2011.

2.            Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. 

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