10.

A comparative balance sheet and income statement for Eaton Company follow:

Eaton Company Comparative Balance Sheet December 31, 2011 and 2010
	2011		2010
Assets
Cash	$	3	$	18
Accounts receivable		410		280
Inventory		145		190
Prepaid expenses		6		4
Total current assets		564		492
Property, plant, and equipment		590		480
Less accumulated depreciation		100		90
Net property, plant, and equipment		490		390
Long-term investments		18		38
Total assets	$	1,072	$	920
Liabilities and Stockholders' Equity
Accounts payable	$	300	$	240
Accrued liabilities		60		70
Income taxes payable		75		68
Total current liabilities		435		378
Bonds payable		275		180
Total liabilities		710		558
Common stock		222		300
Retained earnings		140		62
Total stockholders equity		362		362
Total liabilities and stockholders' equity	$	1,072	$	920

Eaton Company Income Statement For the Year Ended December 31, 2011
Sales			$	780
Cost of goods sold				440
Gross margin				340
Selling and administrative expenses				209
Net operating income				131
Nonoperating items:
Gain on sale of investments	$	10
Loss on sale of equipment		(1)		9
Income before taxes				140
Income taxes				42
Net income			$	98

During 2011, Eaton sold some equipment for $18 that had cost $39 and on which there was accumulated depreciation of $20. In addition, the company sold long-term investments for $30 that had cost $20 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $78 of its own stock. Eaton did not retire any bonds during 2011.

Required:
1.	Using the direct method, adjust the companys income statement for 2011 to a cash basis. (Adjustment amounts that are to be deducted and Net cash "used in" operating activities should be indicated with a minus sign and all other amounts as positive values.)

Eaton Company Direct Method of Determining the Net Cash flows from Operating activities For the Year Ended December 31, 2011
Sales	$
Adjustments to a cash basis:
(Click to select)Increase in inventoryIncrease in income taxes payableDecrease in income taxes payableDepreciationIncrease in accrued liabilitiesDecrease in prepaid expensesDecrease in accrued liabilitiesDecrease in inventoryIncrease in accounts receivableIncrease in prepaid expensesLoss on sale of equipmentDecrease in accounts receivableDecrease in accounts payableGain on sale of investmentsIncrease in accounts payable		$
Cost of goods sold
Adjustments to a cash basis:
(Click to select)Increase in prepaid expensesIncrease in accrued liabilitiesIncrease in inventoryDecrease in income taxes payableIncrease in income taxes payableDecrease in prepaid expensesDecrease in accounts payableIncrease in accounts payableLoss on sale of equipmentDecrease in accounts receivableIncrease in accounts receivableDecrease in inventoryGain on sale of investmentsDecrease in accrued liabilitiesDepreciation
(Click to select)Increase in income taxes payableLoss on sale of equipmentDecrease in accounts receivableIncrease in accrued liabilitiesDecrease in inventoryDecrease in accrued liabilitiesGain on sale of investmentsIncrease in accounts payableIncrease in prepaid expensesDecrease in prepaid expensesDecrease in income taxes payableIncrease in accounts receivableDepreciationIncrease in inventoryDecrease in accounts payable
Selling and administrative expenses
Adjustments to a cash basis:
(Click to select)Decrease in accrued liabilitiesIncrease in prepaid expensesIncrease in accounts payableDepreciationDecrease in accounts receivableLoss on sale of equipmentDecrease in prepaid expensesDecrease in inventoryDecrease in income taxes payableIncrease in accrued liabilitiesIncrease in income taxes payableDecrease in accounts payableGain on sale of investmentsIncrease in accounts receivable
(Click to select)Increase in prepaid expensesDecrease in inventoryGain on sale of investmentsDecrease in prepaid expensesDecrease in accounts receivableIncrease in accrued liabilitiesDecrease in accounts payableDecrease in income taxes payableLoss on sale of equipmentIncrease in income taxes payableIncrease in accounts payableDepreciationDecrease in accrued liabilitiesIncrease in accounts receivable
(Click to select)Increase in income taxes payableDecrease in accrued liabilitiesGain on sale of investmentsDecrease in inventoryDepreciationIncrease in accrued liabilitiesLoss on sale of equipmentDecrease in accounts payableDecrease in accounts receivableDecrease in income taxes payableIncrease in prepaid expensesDecrease in prepaid expensesIncrease in accounts receivableIncrease in accounts payable
Income taxes
Adjustments to a cash basis:
(Click to select)Decrease in income taxes payableDecrease in prepaid expensesIncrease in income taxes payableIncrease in accrued liabilitiesDecrease in accounts receivableDecrease in accrued liabilitiesDecrease in inventoryDecrease in accounts payableDepreciationLoss on sale of equipmentIncrease in prepaid expensesIncrease in accounts receivableIncrease in accounts payableIncrease in inventoryGain on sale of investments
Net cash (Click to select)used forprovided by operating activities		$

2.	Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)

Eaton Company Statement of Cash Flows For the Year Ended December 31, 2011
Operating activities:
Cash received from customers		$
Less cash disbursements for:
(Click to select)Proceeds from sale of long-term investmentsDecrease in common stockProceeds from sale of equipmentIncrease in accounts payableAdditions to plant and equipmentGain on sale of investmentsCash paid for merchandise purchasedLoss on sale of equipmentCash dividendsIncome taxesIncrease in common stockIncrease in inventorySelling and administrative expensesIssuance of bonds payable	$
(Click to select)Increase in common stockIncrease in inventoryIssuance of bonds payableIncome taxesProceeds from sale of long-term investmentsCash dividendsIncrease in accounts payableGain on sale of investmentsDecrease in common stockLoss on sale of equipmentSelling and administrative expensesAdditions to plant and equipmentCash paid for merchandise purchasedProceeds from sale of equipment
(Click to select)Loss on sale of equipmentIncrease in accounts payableSelling and administrative expensesDecrease in common stockIssuance of bonds payableCash paid for merchandise purchasedIncome taxesProceeds from sale of long-term investmentsProceeds from sale of equipmentIncrease in inventoryIncrease in common stockCash dividendsGain on sale of investmentsAdditions to plant and equipment
Total cash disbursements
Net cash (Click to select)provided byused for operating activities
Investing activities:
(Click to select)Gain on sale of investmentsIncrease in accounts payableIncrease in property, plant and equipmentIncrease in accrued liabilitiesIncome taxesIncrease in inventoryDecrease in common stockProceeds from sale of long-term investmentsIssuance of bonds payableDecrease in property, plant and equipmentProceeds from sale of equipmentSelling and administrative expensesIncrease in common stockCash dividendsLoss on sale of equipment
(Click to select)Loss on sale of equipmentProceeds from sale of long-term investmentsDecrease in property, plant and equipmentDecrease in common stockIncrease in accounts payableIncrease in property, plant and equipmentIncrease in inventoryIncrease in accrued liabilitiesIncrease in common stockSelling and administrative expensesProceeds from sale of equipmentGain on sale of investmentsCash dividendsIncome taxesIssuance of bonds payable
(Click to select)Increase in property, plant and equipmentIncrease in accounts payableIncome taxesLoss on sale of equipmentDecrease in common stockSelling and administrative expensesCash dividendsIncrease in accrued liabilitiesProceeds from sale of equipmentProceeds from sale of long-term investmentsIncrease in inventoryIssuance of bonds payableGain on sale of investmentsDecrease in property, plant and equipmentIncrease in common stock
Net cash (Click to select)provided byused for investing activities
Financing activities:
(Click to select)Increase in accrued liabilitiesSelling and administrative expensesCost of merchandise soldIncome taxesProceeds from sale of long-term investmentsIncrease in accounts payableDecrease in common stockAdditions to plant and equipmentIssuance of bonds payableCash dividendsProceeds from sale of equipmentIncrease in common stock
(Click to select)Selling and administrative expensesProceeds from sale of long-term investmentsIncrease in accounts payableProceeds from sale of equipmentIssuance of bonds payableCash dividendsIncrease in common stockIncrease in accrued liabilitiesDecrease in common stockIncome taxesAdditions to plant and equipmentCost of merchandise sold
(Click to select)Proceeds from sale of long-term investmentsCash dividendsAdditions to plant and equipmentIncome taxesIncrease in accounts payableIncrease in accrued liabilitiesCost of merchandise soldIncrease in common stockDecrease in common stockProceeds from sale of equipmentIssuance of bonds payableSelling and administrative expenses
Net cash (Click to select)used forprovided by financing activities
(Click to select)Net decrease in cashNet increase in cash
Cash balance, beginning
Cash balance, ending		$

A comparative balance sheet and income statement for Eaton Company follow. Eaton Company Comparative Balance Sheet December 31, 2011 and 2010 20 2010 Assets Cash 3 Accounts receivable 410 280 nventory 45 90 Prepaid expenses Total current assets 564 492 Property, plant, and equipment 590 480 Less accumulated depreciation 00 90 Net property, plant, and equipment 490 390 Long-term investments 38 Total assets 1,072 920 Liabilities and Stockholders' Equity 300 240 Accounts payable Accrued liabilities 60 70 Income taxes payable 75 68 Total current liabilities 435 378 Bonds payable 275 80 Total liabilities 710 558 Common stock 222 300 Retained earnings 40 62 Total stockholders' equity 362 362 1,072 920 Total liabilities and stockholders' equity Eaton Company Income Statement For the Year Ended December 31, 2011 Sales 780 Cost of goods sold 440 Gross margin 340 Selling and administrative expenses 209 Net operating income 131 Nonoperating items Gain on sale ofinvestments 10 Loss on sale of equipment (1) Income before taxes 40 Income taxes 42 Net income 98 During 2011, Eaton sold some equipment for $18 that had cost $39 and on which there was accumulated depreciation of $20. In addition, the company sold long-term investments for $30 that had cost $20 when purchased several years ago. A cash dividend was paid during 20 11 and the company, repurchased $78 of its own stock. Eaton did not retire any bonds during 2011