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

In 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 in 2011 and the company repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Required:
1.	Using the direct method, adjust the company’s income statement for 2011 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Eaton Company Direct Method of Determining the Net Cash flows from Operating activities
Sales	$
Adjustments to a cash basis:
		$
Cost of goods sold
Adjustments to a cash basis:
Selling and administrative expenses
Adjustments to a cash basis:
Income taxes
Adjustments to a cash basis:
Net cash operating activities		$

2.	Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Cash outflows and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Eaton Company Statement of Cash Flows For the Year Ended December 31, 2011
Operating activities:
Cash received from customers		$
Less cash disbursements for:
	$
Total cash disbursements
Net cash operating activities
Investing activities:
Net cash investing activities
Financing activities:
Net cash financing activities
Cash balance, beginning
Cash balance, ending		$

Answer rating: 100% (QA)

OPERATING ACTIVITY UNDER INDIRECT METHOD NET INCOME ADJUSTEMENT IN NET ... View the full answer