Preparing and interpreting the statement of cash flows using a columnar work sheet.

The accounting records of Circuit City for ""tear 7 and Year 8 indicate the following changes in balance sheet accounts (amounts in millions):

Year 7 Year 8 Cash $159 Increase $ 86 Decrease Accounts Receivable 208 Increase 66 Increase Merchandise Inventories 69 Increase 19 Increase Prepayments 8 Decrease 15 Decrease Property, Plant, and Equipment (at cost) 209 Increase 291 Increase Accumulated Depreciation 99 Increase 116 Increase Accounts Payable — Merchandise Suppliers 117 Increase 44 Increase Notes Payable to Banks (current asset) 92 Decrease 27 Increase Other Current Liabilities 71 Decrease 9 Decrease Bonds Payable 31 Increase 19 Decrease Common Stock 428 Increase 25 Increase Retained Earnings 125 Increase 91 Increase Income statement data appear below :

Year 7 Year 8 Sales Cost of Goods Sold Selling and Administrative Expenses Interest Expense Income Tax Expense Net Income

$ 7,664 S 8,871

(5,903) (6,827)

(1.511) (1,849) (30)

(84) (27) (64)

$ 136 $ 104

a. Prepare a columnar work sheet for the statement of cash flows for Circuit City for Year 7 and Year 8 (see the upper panel of Exhibit 4.4 for the desired format). The firm did not sell property, plant, and equipment during either year. It includes depreciation in selling and administrative expenses. It retired bonds during Year 8 at their book value.

b. Prepare a statement of cash flows for Circuit City for Year 7 and Year 8 using the indirect method of computing cash flow from operations. The balance in cash was S203 at the end of Year 7 and $1 17 at the end of Year 8.

c. Calculate the amount of cash collected from customers each year.

d. Calculate the amount of cash paid to suppliers of merchandise each year.

e. Calculate the amount of cash paid to suppliers of selling and administrative services during each year.

f. Comment on the pattern of cash flows from operating, investing, and financing acti\ ities each year.