Reference no: EM132949947
Financial information for Fesone Inc.'s balance sheet for fiscal 2020 and 2021 follows:
2021 2020
Cash 204,800 550,000
Accounts receivable 1,150,000 1,300,000
Inventory 410,000 250,000
Investments at FV-NI 400,000
Investments at amortized cost 150,000
Property plant and equipment 3,400,000 3,400,000
Accumulated depreciation (1,860,000) (1,570,000)
Total 3,854,800 3,930,000
Accounts payable 260,000 80,000
Bank loan 2,226,000 2,850,000
Bonds payable 187,800 185,000
Preferred shares 0 15,000
Common shares 597,000 450,000
Retained earnings 584,000 350,000
Total 3,854,800 3,930,000
Additional information:
1. Preferred shares were converted to common shares during the year at their book value.
2. The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 8% per annum.
3. Net income was $290,000.
4. There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid.
5. Interest expense for the year was $130,000. Income tax expense was $116,000.
6. Fesone arranged for a $200,000 bank loan to finance the purchase of the investment at amortized cost.
7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities, respectively.
8. The investment at FV-NI is held for trading purposes.
Required:
Problem a. Prepare a statement of cash flows for the year ended December 31, 2021 using the indirect method.
Problem b. Discuss how the transaction(s) above that are not reported on the statement of cash flows are reported in the financial statements.