Reference no: EM132543963

BUSI 3423 Intermediate Accounting - Yorkville University

QUESTION 1:

Skinny Pancake Corporation had the following activities in 2018:

a) Sold land for $180,000.
b) Purchased an FV-NI investment in common shares for $15,000.
c) Purchased inventory for $845,000 for cash.
d) Received $73,000 cash from bank borrowings.
e) Received interest for $11,000.
f) Purchased equipment for $495,000 in exchange for common shares.
g) Issued common shares for $350,000 cash.
h) Recorded an unrealized gain of $3,000 on investments accounted for using the fair value through net income (FV-NI) model.
i) Purchased investments in bonds, reported at amortized cost for $61,000.
j) Declared and paid a dividend of $18,000 (charged to retained earnings).
k) Investments in bonds reported at amortized cost, with a carrying amount of $410,000, were sold for $415,000.
l) Dividends of $4,000 were received on FV-NI investments.

Required:
1) Calculate the amount that Skinny Pancake should report as net cash provided (used) by investing activities on its statement of cash flows under (a) IFRS and (b) ASPE. Under IFRS, Skinny Pancake would adopt the policy of classifying interest and dividends paid as financing activities, and interest and dividends received as investing activities.

QUESTION 2:

Green Mountain Ltd., a private company, has reported increasing profit every year for the past five years. Green Mountain would like to expand operations by adding three new retail stores within the next three years, and is seeking a loan from its bank to help fund the expansion. In Green Mountain's most recent statement of financial position, the company reported a positive cash balance and a healthy current ratio of 2. Green Mountain's controller believes that a statement of cash flows "would not be useful to the bank manager in making their decision because Green Mountain has a solid financial position and has had increasing profit every year for the past five years."

Required:
From the perspective of Green Mountain's bank manager,
1) Discuss the importance of positive cash flows, and
2) Discuss the purpose and usefulness of the statement of cash flows.

QUESTION 3

As at December 31, 2018, Vermont Maple Inc. has the following balances:

 

Cash in bank	$108,000
Investment in preferred shares (retractable, purchased by Vermont Maple within 90 days of maturity date)	120,000
Investment in common shares (to be sold within 30 days)	90,000
Cash (legally restricted for an upcoming long-term debt retirement)	245,000

Required:
Determine the December 31, 2018 cash and cash equivalents amount for the 2018 statement of cash flows under

1) IFRS
2) ASPE

QUESTION 4

Bicycle Thief Inc., a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Bicycle Thief as at May 31, 2018 are as follows:

 

Bicycle Thief Inc.
Statement of Financial Position
As at May 31
	2018	2017
Current assets
Cash	$ 33,250	$ 20,000
Accounts receivable	74,800	55,600
Inventory	188,700	199,000
Prepaid expenses	8,800	7,000
Total current assets	305,550	281,600
Plant assets	596,500	501,500
Less: Accumulated depreciation	148,000	122,000
Net plant assets	448,500	379,500
Total assets	$754,050	$661,100
Current liabilities
Accounts payable	$123,000	$115,000
Salaries and wages payable	61,000	72,000
Interest payable	24,700	22,600

 

Total current liabilities	208,700	209,600
Mortgage payable	75,000	100,000
Total liabilities	283,700	309,600
Shareholders' equity
Common shares	335,750	280,000
Retained earnings	134,600	71,500
Total shareholders' equity	470,350	351,500
Total liabilities and shareholders' equity	$754,050	$661,100

 

Bicycle Thief Inc.
Income Statement
For the Year Ended May 31, 2018
Sales	$1,345,800
Cost of goods sold	814,000
Gross margin	531,800
Expenses
Salaries and wages expense	207,800
Interest expense	66,700
Other operating expenses	24,800
Depreciation expense	26,000
Total operating expenses	325,300
Operating income	206,500
Income tax expense	65,400
Net earnings	$141,100

The following is additional information about transactions during the year ended May 31, 2018 for Bicycle Thief Inc., which follows IFRS:

a) Plant assets costing $95,000 were purchased by paying $44,000 in cash and issuing 5,000 common shares.
b) The "other expenses" relate to prepaid items.
c) In order to supplement its cash, Bicycle Thief issued 4,000 additional common shares.
d) There were no penalties assessed for the repayment of mortgage.
e) Cash dividends of $78,000 were declared and paid at the end of the fiscal year.

Required:
1) Prepare a statement of cash flows for Bicycle Thief Inc. for the year ended May 31, 2018, using the direct method. Support the statement with appropriate calculations, and provide all required disclosures.
2) Using the indirect method, calculate only the net cash flow from operating activities for Bicycle Thief for the year ended May 31, 2018.
3) Assume that you are a shareholder of Bicycle Thief Inc. What do you think of the dividend payout ratio that is highlighted in the statement of cash flows?