Comparative balance sheets for 20X2 and 20X1, a statement of income for 20X2, and additional information from the accounting records of Gemini, Inc., are provided below.

GEMINI, INC. Comparative Balance Sheets December 31, 20X2 and 20X1 ($ in millions)

20X2 20X1

Assets

Cash $ 24 $ 110

Accounts receivable 190 120

Prepaid insurance 7 3

Inventory 285 187

Buildings and equipment 400 240

Less: Accumulated depreciation. (119) (130)

$ 787 $ 530

Liabilities

Accounts payable $ 87 $ 90

Accrued liabilities 6 11

Notes payable 62 0

Bonds payable 160 0

Shareholders Equity

Common stock 400 400

Retained earnings 72 29

$ 787 $ 530

GEMINI, INC.

Statement of Income

For Year Ended December 31, 20X2 ($ in millions)

Revenues

Sales revenue $2,100

Expenses

Cost of goods sold $1,350

Depreciation expense 50

Operating expenses 440

1,840

Net income $ 260

During 20X2, $260 million of equipment was purchased (and paid cash) to replace $100 million of equipment (61% depreciated) sold at book value (cash).

Required: Use the information above to prepare a cash flow statement (indirect method) and reconcile the net income with the cash flow for the year 20X2 for Gemini, Inc. For each operating accrual, indicate the extent to which it may be considered discretionary (or not) and explain why.