Cash flows case: (indirect method).

Messi Company has not yet prepared the statement of cash flows. The Balance sheet as of December 31, 2017 and January 1, 2017 and the additional information regarding the statement of income and retained earnings for the year are presented below.

Messi Company

Comparative Balance Sheet

(Dollars in Millions)

Assets 12/31/2107 1/1/2017

Current Assets:

Cash $ 98 $ 158

Account Receivables 1,290 1,160

Inventory 1,320 1,230

Total Current Assets 2,708 2,548

Property, Plant, and Equipment 3,030 2,932

Less Accumulated Depreciation 1,530 1,282

Net Property, Plant, and Equipment 1,500 1,650

Total Assets $4,208 $4,198

Liability and Equity

Current Liability:

Account payable $500 $310

Accrued Liability 380 330

Income tax payable 152 140

Total current Liability $1,032 $780

Bonds payable 900 1,240

Total Liability 1,932 2,020

Stockholders Equity:

Common Stock 322 322

Retained earnings 1,954 1,856

Total Stockholders Equity 2,276 2,178

Total Liability and Stockholders Equity $4,208 $4,208

Messi Income statement ((Dollars in Millions)

Net Income $7,200

Cost of goods sold 5,100

Gross Margin 2,100

Selling and administrative Expenses 1,750

Net Operating Income 350

Nonoperation items:

Gain on sale of Equipment 6

Income before Taxes 356

Income tax 126

Net Income $ 230

Messi also provided the following information:

The company sold equipment that had an original cost of $26 million and accumulated depreciation of $16 million. The cash proceeds from the sale were $16 million. The gain on the sale was $6 million

The company did not issue any bonds during the year.

The company paid a cash dividend during the year

The company did not complete any common stock transactions during the year

Required:

Prepare a statement of cash flows for the year using the indirect method

Compute Messis free cash flow

Assume that Messi has sales of $7,600, Net income of $230, and net cash provided by operating activities of $300 in the prior year. Prepare a memo that summarizes your interpretations of Messis financial performance

Use the analysis of Messi Company to illustrate how information in the balance sheet and the statement of cash flows helps the users of the financial statements.