1. Complete the Statement of Cash Flows for 1999 by applying the indirect method to his recently completed income statement and comparative balance sheet.
great interest to Brantly. The United States and world economies were having a modest growth year, but predictions of economic slowdown were starting to surface. Many companies began to rethink their outlook for 2000. Compton's budget for capital expenditures in 2000 had recently been revised and was now predicated on an immediate slowdown in demand for computers and computer systems both domestically and worldwide. In addition, several contingency cost-reduction plans had been readied for implementation if and when revenues started declining. Overall, Brantly believed that the company was positioned to withstand a recessionary year. Preparation for the December Meeting The 2000 budgetary process at Compton Computing Systems, which began in May 1999, was now complete except for the final approval of the board of directors. What concerned Brantly most was that, through November, indications pointed to a near-record quarter for orders. In fact, Compton's backlog of orders was increasing. National and international economic indicators also showed a strong business environment. The predicted downturn was not occurring yet. A retrenchment at the wrong time in the business cycle would be very costly to the company. Therefore, Brantly intended to go before the board prepared to discuss alternative capital spending levels. This presentation would require 2000 pro forma financial statements for each of the economic scenarios and comparisons with 1999's financial performance. Since actual 1999 financial statements would be unavailable prior to the end of the year, he would have to project those as well. Brantly had spent most of the day gathering the information he needed to complete the 1999 financial statement projections and had now completed the balance sheets and income statements (Exhibits 1 and 2). All that remained was to complete the statement of cash flows (SCF) for 1999 by applying the indirect method to his recently completed income statement and comparative balance sheet. He knew from the data he had collected that, in 1999 and 1998, principal payments on the long-term debt had been $49 and $42 million, respectively. He also knew that the company had not disposed of any property or equipment in 1998 but in 1999 had disposed of a building for $10 million cash. That building originally cost $18 million and had a book value at the time of the sale of $10 million. After reviewing the 1998SCF (Exhibit 3), he decided to complete this part of his task before leaving for home that evening. Consolidated Income Statements (Millions of dollars) COMPTON COMPUTING SYSTEMS (A) Consolidated Balance Sheets (Millions of dollars) Exhibit 2 (continued) 6= UVA-C-2022 Exhibit 3 COMPTON COMPUTING SYSTEMS (A) Statement of Cash Flows (Numbers in parentheses indicate reductions in cash) (Millions of dollars) For the year ended December 31, 1998: Operations: NetincomeDepreciationandamortizationAdjustmentfordeferredrevenueAdjustmentfordeferredtaxes$5163211735889 Adjustments for: Increase in receivables (95) Decrease in inventories 12 Increase in accounts payable and other accruals 15 Increase in accrued taxes 53 Increase in other current assets (37) Increase in other current liabilities Cash flow-operations (1)51 888 Investing: Payments for additions to PP\&E (408) Increase in other assets (48) Cash flow-investing (456) Financing: Payments on notes payable (6) Proceeds from long-term debt 50 Payments on long-term debt (42) Increases in other liabilities 42 Repurchase of stock (68) Cash dividends paid (56) Cash flow-financing Increase (decrease) in cash 352(80) Cash and equivalents-Jan. 1 Cash and equivalents-Dec. 31 $1,3721,020 great interest to Brantly. The United States and world economies were having a modest growth year, but predictions of economic slowdown were starting to surface. Many companies began to rethink their outlook for 2000. Compton's budget for capital expenditures in 2000 had recently been revised and was now predicated on an immediate slowdown in demand for computers and computer systems both domestically and worldwide. In addition, several contingency cost-reduction plans had been readied for implementation if and when revenues started declining. Overall, Brantly believed that the company was positioned to withstand a recessionary year. Preparation for the December Meeting The 2000 budgetary process at Compton Computing Systems, which began in May 1999, was now complete except for the final approval of the board of directors. What concerned Brantly most was that, through November, indications pointed to a near-record quarter for orders. In fact, Compton's backlog of orders was increasing. National and international economic indicators also showed a strong business environment. The predicted downturn was not occurring yet. A retrenchment at the wrong time in the business cycle would be very costly to the company. Therefore, Brantly intended to go before the board prepared to discuss alternative capital spending levels. This presentation would require 2000 pro forma financial statements for each of the economic scenarios and comparisons with 1999's financial performance. Since actual 1999 financial statements would be unavailable prior to the end of the year, he would have to project those as well. Brantly had spent most of the day gathering the information he needed to complete the 1999 financial statement projections and had now completed the balance sheets and income statements (Exhibits 1 and 2). All that remained was to complete the statement of cash flows (SCF) for 1999 by applying the indirect method to his recently completed income statement and comparative balance sheet. He knew from the data he had collected that, in 1999 and 1998, principal payments on the long-term debt had been $49 and $42 million, respectively. He also knew that the company had not disposed of any property or equipment in 1998 but in 1999 had disposed of a building for $10 million cash. That building originally cost $18 million and had a book value at the time of the sale of $10 million. After reviewing the 1998SCF (Exhibit 3), he decided to complete this part of his task before leaving for home that evening. Consolidated Income Statements (Millions of dollars) COMPTON COMPUTING SYSTEMS (A) Consolidated Balance Sheets (Millions of dollars) Exhibit 2 (continued) 6= UVA-C-2022 Exhibit 3 COMPTON COMPUTING SYSTEMS (A) Statement of Cash Flows (Numbers in parentheses indicate reductions in cash) (Millions of dollars) For the year ended December 31, 1998: Operations: NetincomeDepreciationandamortizationAdjustmentfordeferredrevenueAdjustmentfordeferredtaxes$5163211735889 Adjustments for: Increase in receivables (95) Decrease in inventories 12 Increase in accounts payable and other accruals 15 Increase in accrued taxes 53 Increase in other current assets (37) Increase in other current liabilities Cash flow-operations (1)51 888 Investing: Payments for additions to PP\&E (408) Increase in other assets (48) Cash flow-investing (456) Financing: Payments on notes payable (6) Proceeds from long-term debt 50 Payments on long-term debt (42) Increases in other liabilities 42 Repurchase of stock (68) Cash dividends paid (56) Cash flow-financing Increase (decrease) in cash 352(80) Cash and equivalents-Jan. 1 Cash and equivalents-Dec. 31 $1,3721,020
