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Adjusting a company's income statement to a cash basis

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During 2011, Eaton sold some equipment for $16 that had cost $46 and on which there was accumulated depreciation of $27. In addition, the company sold long-term investments for $44 that had cost $39 when purchased several years ago. A cash dividend was paid during 2011 and the company repurchased $80 of its own stock. Eaton did not retire any bonds during 2011.

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Solution Summary

This solution illustrates how to convert an income statement from accrual basis to cash basis and how to prepare a statement of cash flows using the direct method.

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