P5-5 (Appendix 5A) Preparing the Statement of Cash Flows with Sale of Equipment (Indirect Method) LO5-2, 5-3, 5-5, 5-S1

The following information has been reported by Laporte Inc. on its statements of financial position at December 31, 2019 and 2020 and on its statement of earnings for the year ended December 31, 2020. Amounts are in millions of dollars:

Statements of Financial Position
	2020				2019
Cash	$	120			$	78
Accounts receivable		64				44
Merchandise inventory		47				52
Long-term investments		-				38
Property, plant, and equipment		213				174
Accumulated depreciation		(68	)			(76	)
Total assets	$	376			$	310
Accounts payable	$	44				58
Income taxes payable		4				5
Long-term borrowings		97				47
Contributed capital		162				150
Retained earnings		69				50
Total liabilities and shareholders equity	$	376			$	310
Statement of Earnings
Sales	$	190
Cost of sales		(114	)
Gross profit		76
Depreciation expense		(10	)
Other operating expenses		(45	)
Earnings from operations		21
Gain on sale of investments		7
Loss on sale of equipment		(2	)
Earnings before income tax		26
Income tax expense		5
Net earnings	$	21

Additional information is as follows:

1. Old equipment was sold for cash during 2020. It had an original cost of $36 and an accumulated depreciation of $18.
2. A new building was acquired during the year in exchange for a long-term note for $50, payable in five years. In addition, new equipment was purchased for cash.

Required:

1. Prepare the operating activities section of the statement of cash flows for Laporte Inc. for the year ended December 31, 2020 by using the indirect method. (Negative answers should be indicated by a minus sign. Enter your answers in millions.)

2. Prepare the investing activities section of the statement of cash flows for Laporte Inc. for the year ended December 31, 2020. (Negative answers should be indicated by a minus sign. Enter your answers in millions.)

3. Compute each of the following for the year 2020: (a) quality of earnings ratio, (b) capital expenditures ratio, and (c) free cash flow. (Negative answers should be indicated by a minus sign. Round "Ratio" answers to 2 decimal places.)

4. Based on your answers to (1.) and (2.) above, determine the net cash flow from financing activities. (Hint: This can be done without preparing the financing activities section of the statement.) (Enter your answer in millions.)

5. The president of Laporte Inc., Tanya Turcotte, was provided with a copy of the operating activities section of the statement of cash flows that you prepared in (1.), and made the following comment: This report is supposed to show operating cash inflows and outflows during the year, but I dont see how much cash Laporte Inc. received from customers and how much it paid to trade suppliers and for income taxes. Please ask whoever prepared this statement to provide me with these numbers. Based on Tanyas comment, compute the following amounts for 2020: (Enter your answers in millions.)