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 $ 4 $ 11

Accounts receivable 310 230

Inventory 160 195

Prepaid expenses 8 6

Total current assets 482 442

Property, plant, and equipment 500 420

Less accumulated depreciation 85 70

Net property, plant, and equipment 415 350

Long-term investments 31 38

Total assets $ 928 $ 830

Liabilities and Stockholders' Equity

Accounts payable $ 300 $ 225

Accrued liabilities 70 80

Income taxes payable 71 63

Total current liabilities 441 368

Bonds payable 195 170

Total liabilities 636 538

Common stock 160 200

Retained earnings 132 92

Total stockholders%u2019 equity 292 292

Total liabilities and stockholders' equity $ 928 $ 830

Eaton Company

Income Statement

For the Year Ended December 31, 2011

Sales $ 750

Cost of goods sold 450

Gross margin 300

Selling and administrative expenses 223

Net operating income 77

Nonoperating items:

Gain on sale of investments $ 5

Loss on sale of equipment (2) 3

Income before taxes 80

Income taxes 24

Net income $ 56

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Required:

1.

Using the direct method, adjust the company%u2019s income statement for 2011 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Eaton Company

Direct Method of Determining the Net Cash flows from Operating activities

Sales $

Adjustments to a cash basis:

$

Cost of goods sold

Adjustments to a cash basis:

Selling and administrative expenses

Adjustments to a cash basis:

Income taxes

Adjustments to a cash basis:

Net cash 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. Omit the "$" sign in your response.)

Eaton Company

Statement of Cash Flows

For the Year Ended December 31, 2011

Operating activities:

Cash received from customers $

Less cash disbursements for:

$

Total cash disbursements

Net cash operating activities

Investing activities:

Net cash investing activities

Financing activities:

Net cash financing activities

Cash balance, beginning

Cash balance, ending $