Required: Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2018. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Hint: The right to use a building was acquired with a seven-year lease agreement. Annual lease payments of $9 million are paid at January 1 of each year starting in 2018.) (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $90 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions) 2018 2017 21 Assets Cash Accounts receivable Less: Allowance for uncollectible accounts Prepaid expenses Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Patent $ 23 $ 31 95117 (29) (4) 24 128 110 95 50 110 110 441 295 (152) (118) 3033 $ 765 $ 645 $ 24 $ 52 25 Liabilities Accounts payable Accrued liabilities Notes payable Lease liability Bonds payable Shareholders' Equity Common stock Paid-in capital-excess of par Retained earnings 54 137 70 148 74 271 133 $ 765 50 205 165 $ 645 SURMISE COMPANY ANT Statement of Cash Flows For year ended December 31, 2018 ($ in millions) Cash flows from operating activities: Net income $ 90 Adjustments for noncash effects: 34 25 3 152 X 22 X Depreciation expense Bad debt expense Patent amortization expense Increase in inventory Decrease in accounts payable Changes in operating assets and liabilities: Decrease in accounts receivable Increase in prepaid expenses Decrease in accounts payable Increase in inventory Decrease in accrued liabilities Decrease in accounts payable Acquired building Payment of lease liability Net cash flows from operating activities 22 (3) (18) (23) $ 304 Purchase of long-term investment Acquired building