Lucky Lady Inc.: Preparing comprehensive statement of cash flows (LO 20-1, LO 20-2, LO 20-3, LO 20-4)

The income statement for the year ended December 31, 20X1, as well as the balance sheets as of December 31, 20X1, and December 31, 20X0, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised.

Income Statement

($ in thousands)	For the Year Ended December 31, 20X1
Revenues
Casino	$26,702
Rooms	2,897
Food and beverage	2,351
Other hotel/casino	5,066
Airline	20,784
Total revenues	57,800
Operating Expenses
Casino	9,341
Rooms	1,016
Food and beverage	2,529
Other hotel/casino	5,777
Airline	20,599
Selling, general, and administrative (including bad debt expense of $3,855)	19,679
Depreciation expense	8,018
Hotel preopening expenses	45,130
Aircraft carrying value adjustment	68,948
Total operating expenses	181,037
Operating income	(123,237)
Nonoperating items:
Interest income	12,231
Interest expense	(6,596)
Other, net	16
Income before taxes	(117,586)
Provision for income taxes	0
Net income (loss)	$(117,586)

Balance Sheets

($ in thousands)	December 31,
	20X1	20X0
Assets
Cash	$211,305	$579,963
Gross accounts receivable	35,249	2,178
Less: Allowance for doubtful accounts	(4,733)	(1,531)
Prepaid expenses	11,755	1,219
Inventories	12,662	154
Total current assets	266,238	581,983
Gross property, plant, and equipment	953,796	471,506
Less: Accumulated depreciation	(86,512)	(21,796)
Pre-opening expenses	0	10,677
Other operating assets	26,601	21,116
Total assets	$1,160,123	$1,063,486
Liabilities and Stockholders Equity
Accounts payable	$ 14,181	$ 4,322
Accrued salaries and wages	8,194	945
Accrued interest on long-term debt	9,472	9,429
Other accrued liabilities	33,502	9,744
Construction payables	96,844	32,296
Current maturities, finance leases	1,830	289
Current maturities, long-term debt	1,573	0
Total current liabilities	165,596	57,025
Deferred revenues	10,784	0
Deferred income taxes	6,517	6,517
Long-term obligation, finance leases	14,044	162
Long-term debt	481,427	473,000
Total liabilities	678,368	536,704
Common stock	506	485
Capital in excess of par value	662,365	589,827
Common stock in treasury	(29,490)	(29,490)
Retained earnings (deficit)	(151,626)	(34,040)
Total stockholders equity	481,755	526,782
Total liabilities and equity	$1,160,123	$1,063,486

page 20-50

Additional Information and Author Notes:

• Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 20X1 income statement. [Author Note: You may treat this item as extra depreciation recorded during the year due to abnormal decline in the asset value.]

• Property, plant, and equipment: Includes land, buildings, aircraft equipment, furniture and fixtures, equipment under capital lease, and so on. During 20X1, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. [Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.]

• Finance lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.]

• Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility.

• Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 20X1.

• Laundry loan: On June 16, 20X1, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 20X1, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 20X1. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel.

Required:

Using the indirect method, prepare the statement of cash flows for the year ended December 31, 20X1, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that page 20-51information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Ladys cash flows during 20X1.