Assignment 4: Understanding Cash Flow Statements

From the Income Statement and Balance Sheet below, prepare a complete statement of cash flows for FY2016 in accordance with US GAAP. Clearly label each item in all the three sections.

1) Operating Activities. Prepare this section using both:

a) the direct method and b) the indirect method

2) Investing Activities

3) Financing Activities

Income Statement

Year-ended December 31

(in millions)

	2016
Sales	$12,150
Cost of goods sold	8,900
Gross Profit	3,250
Salaries and wages expense	1,240
Depreciation expense	625
Other operating expenses	1,100
Operating Income	285
Gain on sale of equipment1	120
Interest expense	145
Income tax expense	84
Net income	$176

¹ Net Book value of equipment sold was $880.

Balance Sheet

As at December 31

(in millions)

	2016	2015
Cash	$580	$350
Accounts receivable	472	510
Inventory	1,640	1,725
Prepaid expenses	82	68
Property, plant and equipment, Gross	5,880	5,845
Less: Accumulated Depreciation	1,400	1,000
Property, plant and equipment, net	4,480	4,845
Total assets	$7,254	$7,498
Accounts payable	$1,490	$1,620
Salaries payable	42	48
Interest payable	48	35
Income tax payable	32	60
Other accrued liabilities	450	540
Dividends Payable	125	250
Long-term debt	1,458	1,307
Common stock	2,175	2,070
Retained earnings	1,434	1,568
Total liabilities and equity	$7,254	$7,498