Problem 9-2 Effects of Burger Kings Current Liabilities on Its Statement of Cash Flows

The following items are classified as current liabilities on Burger King Holdings, Inc.s balance sheets as of December 31, 2011, and December 31, 2010:

As of December 31,

2011 2010

Current liabilities:

Accounts and drafts payable $ 98.4 $ 90.5

Accrued advertising 97.4 82.5

Other accrued liabilities 242.2 247.5

Current portion of long term debt and capital leases 33.5 36.2

Total current liabilities 471.5 456.7

Term debt, net of current portion 2,585.9 2,652.0

Capital leases, net of current portion 95.4 103.9

Other liabilities, net 366.2 401.9

Deferred income taxes, net 615.3 624.5

Total liabilities $4,134.3 $4,239.0

Required

1. Burger King uses the indirect method to prepare its statement of cash flows. Prepare the Operating Activities section of the cash-flow statement, which indicates how each item will be reflected as an adjustment to net income. If you did not include any of the preceding items, explain why.

2. How would you decide if Burger King has the ability to pay these liabilities as they become due?