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:
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Cash in bank
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$108,000
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Investment in preferred shares (retractable, purchased by Vermont Maple
within 90 days of maturity date)
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120,000
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Investment in common shares (to be sold within 30 days)
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90,000
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Cash (legally restricted for an upcoming long-term debt retirement)
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245,000
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|
|
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Required:
Determine the December 31, 2018 cash and cash equivalents amount for the 2018 statement of cash flows under
1) IFRS
2) ASPE
QUESTION 4
Bicycle Thief Inc., a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Bicycle Thief as at May 31, 2018 are as follows:
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Bicycle Thief Inc.
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Statement of Financial Position
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As at May 31
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|
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2018
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2017
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Current assets
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|
|
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Cash
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$ 33,250
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$ 20,000
|
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Accounts receivable
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74,800
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55,600
|
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Inventory
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188,700
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199,000
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Prepaid expenses
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8,800
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7,000
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Total current assets
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305,550
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281,600
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Plant assets
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596,500
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501,500
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Less: Accumulated depreciation
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148,000
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122,000
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Net plant assets
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448,500
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379,500
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Total assets
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$754,050
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$661,100
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Current liabilities
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|
|
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Accounts payable
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$123,000
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$115,000
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Salaries and wages payable
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61,000
|
72,000
|
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Interest payable
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24,700
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22,600
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Total current liabilities
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208,700
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209,600
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Mortgage payable
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75,000
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100,000
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Total liabilities
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283,700
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309,600
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Shareholders' equity
|
|
|
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Common shares
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335,750
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280,000
|
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Retained earnings
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134,600
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71,500
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Total shareholders' equity
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470,350
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351,500
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Total liabilities and shareholders' equity
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$754,050
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$661,100
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Bicycle Thief Inc.
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Income Statement
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For the Year Ended May 31, 2018
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Sales
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$1,345,800
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Cost of goods sold
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814,000
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Gross margin
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531,800
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Expenses
|
|
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Salaries and wages expense
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207,800
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Interest expense
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66,700
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Other operating expenses
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24,800
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Depreciation expense
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26,000
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Total operating expenses
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325,300
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Operating income
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206,500
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Income tax expense
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65,400
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Net earnings
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$141,100
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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?