Question

A comparative balance sheet and an income statement for Blankley Company are given below:


Blankley Company
Income Statement
(dollars in millions)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,700
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,540
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,160
Selling and administrative expenses . . . . . . . . . . . . . 880
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . 280
Nonoperating items: Gain on sale of equipment . . . . 2
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 282
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170

Blankley also provided the following information:
1. The company sold equipment that had an original cost of $12 million and accumulated depreciation of $7 million. The cash proceeds from the sale were $7 million. The gain on the sale was $2 million.
2. The company did not issue any new bonds during the year.
3. The company paid a cash dividend during the year.
4. The company did not complete any common stock transactions during the year.

Required:
1. Using the indirect method, prepare a statement of cash flows for the year.
2. Assume that Blankley had sales of $3,900, net income of $190, and net cash provided by operating activities of $160 in the prior year (all numbers are stated in millions). Prepare a memo that summarizes your interpretations of Blankley’s financialperformance.


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  • CreatedSeptember 27, 2013
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