Prepare a Statement of Cash Flows [LO1, LO2]

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

Blankley Company Comparative Balance Sheet (dollars in millions)
Ending Beginning Balance Balance Assets Current assets:
Cash and cash equivalents . . . . . . . . . . $ 39 $ 81 Accounts receivable . . . . . . . . . . . . . . . . 640 588 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 650 610 Total current assets . . . . . . . . . . . . . . . . . . 1,329 1,279 Property, plant, and equipment . . . . . . . . . 1,505 1,484 Less accumulated depreciation . . . . . . . 770 651 Net property, plant, and equipment . . . . . . 735 833 Total assets . . . . . . . . . . . . . . . . . . . . . . . . $2,064 $2,112 Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 260 $ 160 Accrued liabilities . . . . . . . . . . . . . . . . . . 180 170 Income taxes payable . . . . . . . . . . . . . . . 77 72 Total current liabilities . . . . . . . . . . . . . . . . 517 402 Bonds payable . . . . . . . . . . . . . . . . . . . . . . 415 600 Total liabilities . . . . . . . . . . . . . . . . . . . . . . 932 1,002 Stockholders’ equity:
Common stock . . . . . . . . . . . . . . . . . . . . 145 145 Retained earnings . . . . . . . . . . . . . . . . . 987 965 Total stockholders’ equity . . . . . . . . . . . . . . 1,132 1,110 Total liabilities and stockholders’ equity . . . $2,064 $2,112 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 financial performance.