112 prepare the cash flows from operating activities

11.2 Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye
Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
38

The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income
for 2013 was $70 million.
SURMISE COMPANY
Comparative Balance Sheets
December 31, 2013 and 2012
($ in millions)
2013 2012
Assets
Cash $ 86 $
Accounts receivable 84
Less: Allowance for uncollectible accounts (19) (4)
Prepaid expenses 14
Inventory 167 150
Long-term investment 104
Land 88
Buildings and equipment 352 245
Less: Accumulated depreciation (122) (98)
Patent 20
$ 774 $ 621
Liabilities
Accounts payable $ 18 $
Accrued liabilities (3)
Notes payable 38
Lease liability 107
Bonds payable 59 117
Shareholders’ Equity
Common stock 64
Paid-in capital — excess of par 259 205
Retained earnings 232 202
$ 774 $ 621
12. Prepare the statement of cash flows of Surmise Company for the year ended December 31,
2013. 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. (Enter your answers in millions. Amounts to be deducted should be indicated
with a minus sign.)
41
96
11
70
88
22
32
15
0
0
50

SURMISE COMPANY
Statement of Cash Flows
For year ended December 31, 2013
($ in millions)
Cash flows from operating activities:
Net income
$ 70
Adjustments for noncash effects:
Depreciation expense
24
Bad debt expense
15
Patent amortization expense
2
Changes in operating assets and liabilities:
Decrease in accounts
receivable
12
Increase in inventory
-17